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Seligman, Edwin Robert 


Essays in taxation 


New York 











Seligman, Edwin Robert Anderson, 1861-1939. 

Essays in taxation, "by Edwin R. A. Seligman 
• •• 4th ed. New York, Printed for the 
Columbia university press by The Macinillan 
company; London, Macmillan & co., ltd., 1903. 

X, 434 p. 22-^^"'. 

Includes bibliographies* 










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The period of two years that elapsed between the first and 
the second editions of this work was so short as to call for 
only a few minor corrections and alterations. After a fur- 
ther interval of two and a half years, the third edition now 
appears. During this period there have been many changes 
in detail in the tax laws of the United States as well as of 
Europe. But nothing has occurred of sufficient importance 
in principle to require any serious modification of the views 
origiually expressed. The alterations in the present edition 
are, therefore, confined to relatively unimportant matters, 
as any attempt to bring all the facts of American taxation 
down to date would have necessitated an entire rewriting 
of a large part of the work. It is only in Chapter V. that 
the requisite changes have been made. In the remainder 
of the book, unless expressly stated to the contrary, the 
facts as given are those that existed at the time of the 
first edition. If a future edition should be called for, it is 
hoped that the discussion may be brought down to date. 


Columbia University, New York, 
March, 1900. 



Of the essays published in this volume about one-half 
are new. The others have already appeared during the 
past five years in various scientific periodicals, like the 
Political Science Quarterly^ Quarterly Journal of Economics^ 
Yale Review and Journal of the Social Science Association^ 
but have been revised and brought down to date. Although 
nominally disconnected, the essays, new and old, which are 
here printed, will, I trust, be found not to be entirely lack- 
ing in continuity, or unworthy of the more permanent form 
which they now assume. Although they were written 
primarily from the American point of view, I venture to 
hope that the discussions of theory may prove to be of a 
wider interest. 

Several colleagues and other friends have aided me with 
advice and encouragement. But special acknowledgments 
are due to Mr. Max West, Ph.D., lecturer on taxation and 
finance in Columbia College, and to Mr. Arthur M. Day, 
A.M., assistant in political economy and social science in 
Columbia College, for the painstaking care with which they 
have read the proofsheets, and for the many suggestions, 
as to both matter and form, which they have been kind 
enough to make. For the index Dr. West is responsible. 

Bkllaoio, Italy, September, 1895. 



The Development of Taxation . • • 

I* Voluntary and Compulsory Payments 

n. Direct versus Indirect Taxation • 

m. The Forms of Direct Taxation • • 

lY. Changes in the Basis of Taxation • 




The General Property Tax ••••••, 

I. Practical Defects ••••••••24 

n. History of the Property Tax •••••• 37 

m. Theory of the Property Tax ••••«• 54 

lY. Conclusion ••••50 

. • 


The Single Tax • ^ •••••• • 

I. What is the Single Tax ?•••••• 

n. The General Theory • • 

in. Practical Defects .••••••• 

1. Fiscal Defects. 2. Political Defects. 3. Ethical 
Defects. 4. Economic Defects, (a) Effect on poor com- 
munities ; (6) On farmers ; (c) On rich communities. 

V. Conclusions • • 

• • 








Double Taxation . 95 

L By the Same Authority 97 

1. Property and Income. 2. Property and Debts. 
3. Corporations and Investors. 4. Corporate Property 
and Stock. 

n. By Competing Authorities 107 


The Inhebitancb Tax . 

. 121 


The Taxation op Corpobations. I. History . . . .136 

I. Early Taxation 137 

n. Development of the Corporation Tax . . . .141 

1. Banks. 2. Insurance Companies. 3. Railroads. 
4. Other Transportation Companies. 5. Miscellaneous 
Corporations. 6. The General Corporation Tax. 

Hr. Bases of the Tax ..#•••.. 17C 


The Taxation of Corporations, n. Principles ... 180 

I. The Franchise Tax igQ 

n. Economic Theory 192 

UL Practical Reforms 206 


The Taxation of Corporations, m. Complications and 

Conclusions 213 

L Property and Debts • . 213 


n. Income and Property ..••••. 215 

in. Property and Stock 218 

IV. Double Taxation due to Conflicts of Jurisdiction . . 223 

1. Interstate Taxation of Corporate Property. 2. Of 
Corporate Securities. 3. Of Non-resident Security-hold- 
ers. 4. Of Receipts. 

V. The Corporation and the Security-holder . . • . 243 

VI. Incidence 254 

vn. Local Taxation • • . 258 

Vm. Conclusion 262 


The Classification of Public Revenues . . • • . 265 

L The Primary Classification 266 

IL The Police Power versus the Taxing Po^er • • . 269 

in. Fees 274 

rV. Special Assessments 282 

V. Prices 292 

VI. Conclusions • • • 302 


Recent Reforms in Taxation 305 

I. England ...••••••. 307 

n. New Zealand 314 

m. Holland 322 

IV. Prussia • . . . . 330 


The Betterment Tax 340 

I. The Origin 340 

n. Betterment and Taxation ..•••.. 343 

m. The Principle 352 



Recent European Litkbature in Taxation .... 868 

^' ^'^y ! ! 358 

n. France .... „^ 

_ 869 

in. Italy, HoUand and Spain 077 

IV. Switzerland . . , 

V. England ! ! ! 389 

American Reports on Taxation 
I. New York and Massachusetts 
IL Illinois and Maryland 
m. Maine and Pennsylvania . 
rV. New York and Ohio . 
V. Massachusetts and Pennsylrania 

. 399 

• 399 

• 401 

• 404 
. 410 
. 416 




To the citizen of the modern state, taxation, however dis- 
agreeable it may be, seems natural. It is difficult to realize 
that it is essentially a recent growth and that it marks a com- 
paratively late stage in the development of public revenue ; 
it is more difficult to realize that each age has its own sys- 
tem of public revenue, and that the taxes of to-day are 
different from those of former times ; it is still more 
difficult to perceive that our ideals of justice in taxation 
change with the alteration in social conditions. Not only 
the actual forms of taxation, but the theories of taxation as 
well, vary with the economic basis of society. Fiscal con- 
ditions are always an outcome of economic relations. This 
is true even where the direct influence of political causes 
is traceable, for political changes are in the last resort de- 
pendent on economic changes. Finance and economics are 
inextricably intertwined. Like all the facts of social life, 
taxation itself is only an historical category. 


Voluntary and Compulsory Paymenti, 

At the beginning of history there is no such thing as a 
state. Whether we accept Hobbes' theory of the helium 
omnium contra omnes, or the more modern clan theory of 

B 1 


the origin of society, there is no public household, because 
there are no recognized public needs. But even in the origi- 
nal man there are possibilities of social development. Man, 
as Aristotle tells us, is a social and political animal. 
Centuries of hard experience strengthen the social instinct 
and contribute to form primitive society, until finally a real 
political life emerges. 

Gradually from either physical, ethical or religious reasons 
a leader evolves. The oldest or the wisest or the bravest — 
at all events, the one possessed of some peculiar character- 
istic — becomes the leader of the horde, the clan or the 
tribe. He acts as the great priest, great judge or great 
warrior, often combining all three qualities. There are 
no financial needs, because the only consideration is that 
of defence ; and every man contributes to the defence in 
his own person. The leader himself subsists on the booty 
of war. 

But with the growth of society and the expansion of the 
clan into the larger community, the public needs develop. 
Administration begins. Roads, bridges and fortifications 
are constructed, and the prince or king must now not only 
maintain order, but must be assured of a revenue to sup- 
port his household and to distribute favors to his retinue. 
All his followers, being roughly equal, now support him 
by gifts, whether of labor or of property. In all primi- 
tive societies voluntary offerings constitute the first form 
of common contributions, and every man feels the necessity 
of upholding the political and military organization by his 
own personal efforts. 

The king's needs now increase. They are chiefly per- 
sonal needs, except in so far as expenditures are made for 
the purposes of internal peace and external defence. But 
in order to ensure his position, the king endeavors to 
secure his revenues elsewhere. He develops the subsidies 
and tributes of the allied and conquered nations, and 
amasses treasure filched from abroad. Part of this he dis- 
tributes among his followers; part he retains to increase 


his own possessions. The private property of the king 
differentiates itself from the public property, which was 
originally common to all. The monarch now increases his 
revenues and domains through the acquisition of lucrative 
prerogatives of all kinds. Certain activities come to be 
looked upon as within his peculiar province. The king's 
peace must be kept — any infraction must be paid for in 
fines and penalties ; not only crimes, but torts, have their 
public side. Nobody can harm an individual without 
breaking the king's peace, and having to pay for it. Com- 
merce begins, and weights and measures and money are 
needed. The royal rights of coinage arise ; and as the 
kingship becomes stronger, the rights of escheat, of wreck, 
of confiscation develop, until finally the various royal pre- 
rogatives bring in a substantial revenue. 

Voluntary payments have in the meantime ceased. As 
society advances, what was at the outset freely given comes 
to be paid by the individual from a sense of moral obliga- 
tion. But with the weakness of human nature, in the face 
of a diversity of interests, even the feeling of duty soon 
fails to produce an adequate revenue. The moral obligation 
slowly becomes a legal obligation, keeping pace with the 
crystallization of social usage and custom into primitive law ; 
the voluntary offerings become compulsory contributions. 
But the compulsory contributions are still largely personal 
services, connected with the common security. Such was the 
early mediaeval trinoda necessitas, the liability to military ser- 
vice, to watch and ward, and to the repair of the bridges and 
fortifications. The first forced contribution of the individual 
to the maintenance of the common welfare is always seen in 
this rude attempt to assess every one according to his ability 
to bear the common burden — his faculty. This faculty 
consists in the enforced participation in the administration. 
But there is not yet any idea of taxation of property. The 
contribution is personal, and is limited to a few well-defined 
objects. The individual's faculty is found in his person, not 
in his property, because there is practically no private prop- 




erty. And the contributions are, for the most part, not 
regular, but spasmodic. 

As civilization gradually advances, private property 
develops, and the primitive equality slowly disappears. 
The interchange of commodities takes place on a larger 
scale. The old revenues are no longer adequate, and it 
becomes necessary for the monarch to supplement them by 
broadening the field of these compulsory contributions of 
service. In other words, the need of taxation arises. But 
a direct tax is still out of the question. Public opinion will 
not yet admit its necessity. The taxation of property is 
scarcely less impossible than the taxation of the person. It 
is regarded as a badge of disgrace f o* the freeman — a nota 
captivttatis^ as the Romans at first called it — , because only 
conquered enemies have to pay this arbitrary impost. The 
king, therefore, must endeavor to effect his object covertly. 
He must go to work in a roundabout way, and hide the tax 
in a variety of disguises. He either gradually extends his 
lucrative prerogatives, or alleges that the charges are simple 
returns for governmental services. He grants protection or 
privileges to individuals, and requires some payment in 
return. Thus begins the period of fees and charges, which 
the individuals are willing to pay and which gradually recon- 
cile the public to the idea of governmental charges. 

But before long the monarch feels able to throw off all 
disguises, and limits the amount of his exactions only by the 
degree of his rapacity. Thus the fees and tolls change into 
taxes on exchange and transportation ; thus the people be- 
come accustomed to the " customs " ; thus the " evil duties " 
and the excises grow apace; thus the payments become 
veritable "impositions." In other words, the community 
enters upon the stage of indirect taxation. 

This explains why it is so difficult for the idea of direct 
taxation to force its way into popular favor. The earliest 
manifestations of the taxing power are generally merciless 
and brutal. They are apt to react on the public consciousness 
and to stunt the growth of any feeling of obligation. It is 


not until public morality has so far developed as to introduce 
more lenient and more refined processes of indirect taxation 
that we discover a growing willingness on the part of the 
individual to pay direct taxes. Another reason for the later 
appearance of direct taxation is that the indirect taxes are 
often paid without the contributors being really conscious of 
it. They are jealous of their own and not public-spirited. 
They are willing to give only that the loss of which they do 
not feel. But whatever be the reason, it is clear that when 
this final stage — possible only after centuries of laborious 
and continued exertion — has been reached, we enter upon 
a new phase in the history of finance. The readiness to 
share in the public burdens out of one's property presupposes 
a far higher social ethics and a far more complex society 
than was possible in the simple conditions when every one 
was willing to take part in the defence of the village or the 
repair of the roads. Interests have now become specialized. 
It needs a far greater sense of civic obligation to submit 
cheerfully to direct property taxation than was necessary in 
primitive times for the putting forth of mere personal exer- 
tions. Even to-day the full import of this obligation is only 
inadequately grasped. Until within a few years it was 
deemed necessary to base the theoretical justification of tax- 
ation on fanciful doctrines of contract, of protection and the 
like. And even at the present time, those who cheerfully 
seek to contribute their share to the common burden form 
the exception, not the rule. But even the imperfect recog- 
nition of this duty implies a highly developed political 
consciousness. The method of taxing every one according 
to his property is the first rough attempt of a property- 
owning community (as over against a primitive community) 
to assess each member according to his relative ability. The 
introduction of the direct property tax is a vast step forward 
in the development of social ethics. 

This historical process is well illustrated by etymology. 
If we look at the various terms applied to what we to-day 
call a tax, we shall find every shade of the development 



reflected not only in the words used in former centuries, but 
in those still employed to-day. There are no less than seven 
different stages in this etymological growth. 

The original idea was that of gift. The individual made 
a present to the government. We see this in the mediaeval 
Latin term donum and in the English benevolence, which was 
used far into the middle ages. The second stage was reached 
when the government humbly implored or prayed the people 
for support. This is the meaning of the LsLtiii precarium, 
used for many centuries on the continent, as well as of the 
German Bede (from beten, to pray). The Landbede was 
the term applied to the land tax in the German states until 
quite recently. With the third stage we come to the idea 
of assistance to the state. The individual felt that, if not 
making a gift, he was at least doing the government a favor. 
This idea is expressed in the Latin adjutorium, the English 
aid and the French aide, which was at one time used for all 
kinds of taxes. The same idea is discernible in the English 
STibsidt/ and contribution. It has survived in the German term 
for a tax, Steuer (^stevsm, to help), and in the Scandinavian 
hjelp. In France contribution is even to-day commonly used 
as synonymous with tax. 

The fourth stage of development brings out the idea of 
sacrifice by the individual in the interest of the state. He 
now surrenders something for the public good. This is seen 
in the old French gabelle, in the modern German Abgabe, and 
in the familiar Italian dazio. In each case the citizen gives 
or sacrifices something. With the fifth stage the feeling 
of obligation develops in the taxpayer. The English dutg 
was not originally restricted to its present narrow meaning 
in the United States. Here it is usually applied to import 
taxes and sometimes to the internal revenue taxes. But 
even to-day in England the term includes some of the 
most important so-called direct taxes, like the inheritance 
tax and the income tax. It is not until the sixth stage is 
reached that we meet the idea of compulsion on the part of 
the state. We see this in our impost or imposition, as well 


as in the French imp6t and the Italian imposta. Although 
we limit the term to a certain kind of tax, the French use 
it as the generic epithet par excellence. The same idea is 
seen in the German Auflage (something "laid on") and 
Aufschlag (something "clapped on"), frequently used at 
present for certain indirect charges on commodities. 

With the seventh and final stage we reach the idea of a 
rate or assessment, fixed or estimated by the government 
without any reference to the volition of the taxpayer. We 
see this in the mediaeval English scot (to be "at scot and 
lot "), which is nothing but the German Schoss or the Scandi- 
navian skatU It is seen in the German Schdtzung (or 
estimate), which was used in the early part of the century. 
Above all, it is recognized in our tax (taxare, to fix, to esti- 
mate), the French taxe, the Italian tassa and the English rate. 
It is worthy of note that in the middle ages " tax " always 
meant a direct tax, for which a regular assessment list or 
schedule was made. 

II. Direct versus Indirect Taxation. 

With the introduction of direct taxation, the progressive 
increase of public revenues becomes far easier. This is 
fortunate, for with the advance of civilization the public 
expenditures grow apace. For a long time, as we have seen, 
almost the only aims of government are security and defence. 
But as economic conditions develop and various classes 
of society differentiate, more attention must be paid to mat- 
ters of general welfare. Expenditures for commerce, indus- 
try and transportation arise. The need is felt for better 
roads, for more canals, for improved methods of com- 
munication through the postal service. Then the less 
material ends of government are recognized. Education 
must be provided, hospitals and asylums must be erected, and 
the sanitary conditions must be looked after. Finally comes 
the immense growth of the modern state, with its new func- 
tions due partly to the industrial revolution, partly to the 





growth of democracy, partly to the recognition in legislation 
of the preventive as against the repressive principle. These 
new functions mean fresh expenditures ; and these expendi- 
tures mean increased taxes. Thus the characteristic mark 
of the modem age is taxation as against the more or less 
self-sufficing public economy of former times. 

Direct taxation, as we have seen, generally forms the last 
step in the historical development of public revenues. At 
first regarded entirely as an extraordinary means of sup- 
port, it gradually assumes the character of an ordinary 
form of revenue. In the early days of classic antiquity 
the direct tax was used only in very exceptional exi- 
gencies and was, in fact, regarded as a compulsory loan, 
to be repaid in the future. It was not until after the 
establishment of the Roman Empire, for instance, that the 
regular direct taxation of Roman citizens began. And 
the same process may be observed throughout the history 
of many mediaeval states down to the most recent period of 
European and American history. 

In some cases, however, this historical process assumes a 
slightly different form. It depends entirely on the economic 
conditions and on the relative importance of the various 
social classes. For instance, it is incontrovertible that cer- 
tain kinds of indirect payments always come first, as has 
been explained above. But when the people understand 
that indirect charges on commodities increase their price 
and thus form veritable taxes, it sometimes happens that 
more opposition is shown to indirect than to direct taxa- 
tion. In such cases direct taxes furnish the ordinary 
revenue, and it is only after a severe struggle that indirect 
taxes are introduced. 

This process can be clearly traced in the history of 
mediaeval and modern revenue. In democratic communi- 
ties, where the legislation is influenced by the mass of the 
people, we commonly discern a tendency to oppose indirect 
taxes on consumption. In the early mediaeval towns the 
democratic instincts were strong, because of the more equal 


distribution of property. We accordingly find that the rev- 
enue systems was based largely on direct payments, and that 
the populace rebelled against indirect imposts. But on the 
continent, where aristocratic influences gradually became 
powerful enough to break down the communal liberty and 
democracy, the mass of the people were ground down by 
taxes on the necessaries of life, while the wealthier or gov- 
erning classes practically escaped. When the democratic 
upheaval took place, as in the Italian towns, we find an 
attempt to reintroduce the old order of things and to 
reach the wealthy by a system of direct taxes. But with 
the downfall of the mediaeval democracy, the property and 
income taxes disappeared, while the octroi and municipal 
indirect taxes again came to the front. Only in England, 
where the democratic instincts maintained themselves some- 
what more strongly, and where the power of the aristocracy 
was held in check by a strong monarchy, do we find continued 
opposition to the general excises and to local taxes on the 
necessaries of life. It was with the greatest difficulty that 
the excise system was introduced. And the same feeling 
was awakened under similar conditions on the other side 
of the Atlantic, when Hamilton initiated his system of in- 
direct taxation or internal revenue in the federal fiscal 
system of the United States. " The time will come," said 
one of the members of Congress in 1790, " when the poor 
man will not be able to wash his shirt without paying a 
tax." With the advent of the modern democratic state, we 
notice the same tendency. Indirect taxes, says Lassalle, 
are taxes on labor. Hence the efforts of modern democ- 
racy in England, in Switzerland and in America to confine 
indirect taxes on consumption and exchange within the 
narrowest limits. 

On the other hand, there is a counter-tendency which 
has frequently been overlooked. Curious as it may seem, 
indirect taxes were advocated in the later middle ages as the 
means of introducing not inequality, but equality, of taxa- 
ation. This was owing to the fact that the privileged classes 






on the continent had succeeded in securing virtual immu- 
nity from taxation. The nobles were largely exempted from 
the land tax, while the clergy and the wealthier citizens in 
general were able to a large degree to purchase freedom 
from the tax burdens. What was more natural than that 
the statesmen and tax reformers should attempt to make 
them pay something through taxes on their expenditure, 
which they could not well escape ? Their plan, it is true, 
no longer took the shape simply of taxes on the necessaries of 
life ; it was now expanded into the single tax on all expense 
which would reach the rich as well as the poor. This was the 
idea of Colbert ; and it has been the idea from the time of 
Hobbes and Petty of all enthusiasts for indirect taxation in 
England, and of many writers in Germany, in France and in 
Italy. To-day we are clamoring for the abolition of indirect 
taxation ; formerly the reformers clamored for a single uni- 
versal indirect tax. The explanation, as we see, is simple. 

But this does not yet answer the question why excise 
taxes were actually introduced into England, as elsewhere, in 
the seventeenth century. The fact is that tax reformers can- 
not do much good if economic conditions are not ripe for their 
proposals. It must be confessed that according to the expe- 
rience of history most reforms, in finance at least, are due to 
selfish reasons ; they are the necessary outcome of changes 
in economic relations and of the efforts of each class, whether 
it be the small or the large class, to gain some advantage 
for itself. The classic home of the excise tax or indirect 
tax on business and trade is Holland. It is well known 
that Holland, during the sixteenth and seventeenth cen- 
turies, had become the leading financial and trading 
nation of Europe. In the other countries wealth was still 
centred in the landed interests, and the whole system of 
taxation was largely dominated by feudal aristocratic ideas. 
The direct taxes were land taxes, because wealth consisted 
chiefly of land ; but the landed proprietors sought to escape 
the burden by assessing real property as low as possible 
and by putting taxes on the necessaries of life of the poorer 

classes. In Holland, on the other hand, wealth was now 
largely centred in the moneyed interest. The great traders 
and merchants did not relish any direct taxation of trading 
capital, and therefore devised a system of indirect taxation 
of business which would, as they thought and hoped, be 
shifted to the community in general, and to the poorer 
classes in particular. Thus developed the stamp taxes, the 
excise taxes, and the whole host of indirect taxes for which 
Holland was noted. 

The seventeenth century marks the rise of the trading 
class in England; "the glorious revolution" was a revolution 
not so much of the people as of what the Socialists love to 
call the "bourgeois." Puritanism and commercialism went 
hand in hand, and the downfall of the Stuarts not only put 
an end to feudalism, but weakened the fiscal ascendency of 
the landowner — an ascendency to which another serious 
blow was given by the abolition of the Corn Laws, and whose 
final overthrow in England, as elsewhere, is fast approaching. 
The indirect taxes of the seventeenth century were thus the 
outgrowth of the effort on the part of the commercial classes 
to escape the burdens which the landowners were desirous 
of placing on them. The selfish designs of the capitalists 
and the unselfish ideas of the tax reformers went hand in 
hand to widen the scope of indirect taxes. And as the 
trading class developed in the other countries, the system of 
excise spread with it.^ It was not until the democratic move- 

1 A word may be said, in passing, about our present attitude toward indi- 
rect taxes. There is a prodigious amount of cant on this topic. Many- 
thinkers are apt to make common cause with the Socialists in demanding the 
complete abolition of the so-called indirect taxes. This is a mistake. There 
is nothing inherently bad about an indirect tax, nor is there anything in- 
herently good about a direct tax. It depends entirely upon what kind of 
direct or indirect tax it is. A direct tax on the laborer is not necessarily 
good because it is direct ; an indirect tax on the luxury of the rich is not 
necessarily bad because it is indirect. It happens, indeed, that most of the 
indirect taxes of the past have been devised by the powerful in order that 
their burden might fall on the weak ; but it is by no means impossible to 
frame a system of taxes on consumption which will supplement other taxes 
and do substantial justice to all. The elaboration of this point must be 
reserved for another place. 







ment of the nineteenth century, when the system of excises 
was recognized as a burden on the poorer classes, that the 
number of commodities subject to excise was gradually 

III. The Forms of Direct Taxation, 

We have seen the economic relations which condition the 
interworking of direct and indirect taxation. Let us now 
endeavor to learn how these economic conditions affect the 
growth of direct taxation itself. 

In primitive society, there is a certain rough equality in the 
personal status and the personal abilities of the individual. 
Hence the idea of the poll or capitation tax, which is the 
first rude manifestation of the equities of taxation. The 
members of a club to-day pay equal dues, because their inter- 
ests are supposed to be equal. Club life does not cover the 
whole of human activity, but only a very small portion of 
it. So, in the same way, as long as economic conditions are 
primitive, the social obligations of the members of the clan 
or the state are conceived to be equal. But as the social 
conscience develops, more stress is laid on other elements of 
ability to pay than on mere number. Not only do men differ 
in strength, in mental vigor and in opportunities, but 
inequality of possessions grows greater. And with differ- 
ences in property, the old feeling of equal obligation 
weakens. The poll tax becomes unjust and is gradually 
abolished. A certain phase of this primitive feeling some- 
times persists for a long time, especially in democracies 
where political equality is still based on the fiction of eco- 
nomic equality. We find poll taxes as adjuncts to other 
taxes long after the justification of a single poll tax has dis- 
appeared. But it has now assumed a political significance, as 
in Switzerland and in some of the American commonwealths, 
where its pajrment is made a condition of the suffrage. 
Even this tends to become a farce to the extent that the 
payment of the tax is assumed by the political parties. The 

economic basis of the poll tax has entirely vanished and it 
tends to be replaced by the property tax. 

The first property taxes are entirely in harmony with 
the facts of early industrial life. It is a matter of common 
knowledge that the early period of every civilization is 
marked by two chief facts, the almost exclusive prepon- 
derance of agriculture and the existence of slavery. As 
Rodbertus has pointed out,^ this leads to a fundamental 
distinction between ancient and modern economic theories. 
In modern civilization we have not only a quantitative 
division in wealth, but also a qualitative difference. That is, 
not only are there rich and poor, but there are landowners, 
capitalists, employers and laborers. In early civilization 
there was a quantitative but no qualitative distinction in 
wealth. All property consisted simply of land and the land- 
owner's household, including slaves and beasts of burden. 
There was no important capital apart from this landed 
property, and hence there were no distinct shares in dis- 
tribution. But Rodbertus errs in confining to Greece and 
designating by the Greek name an economic system which 
is characteristic of all early civilizations. It was as true 
of the slave-holding states in the American Union, and 
of the mediaeval manorial system, as it was of the Hellenic 
civilization. Wherever we find only agriculture and slav- 
ery, there we have this inseparable mass of collective prop- 
erty, not yet split up into its constituent parts. 

The importance of this for finance lies here : since we 
have only this general collective property, and since this 
property consists practically of land and the means to till 
the land, the direct property tax must take the shape either 
of the land tax or of the tax on the cattle or slaves or imple- 
ments used in agriculture. These are practically tantamount 
to each other. For the produce of two given portions of land 
will vary about in proportion to the value of the land, 

^ *' Untersuchungen auf dem Gebiete der Nationalokonomie des klas- 
sischen Alterthums," in Hildebrand's Ja^rftwc/ier^r JViifionaZoifconomie und 
Statistikf iv., p. 343 et seq. 








together with the amount of slaves and cattle necessary to 
till it. Everywhere at first, therefore, the direct property 
tax is found to be either the land tax or the tax on agricult- 
ural capital.^ It is the only practicable and the only just 
form of taxation at this early period. 

But it is important to notice that the property which is 
now taxed is not so much property in land as property in the 
produce of land. Whether we have the primitive village 
community or only the system of common cultivation, the 
earliest private property consists of the produce of the soil. 
The first attempt, therefore, to take account of the grada- 
tions in the tax-paying ability of the individual is seen in 
the tax on gross produce — the tithe or any other portion of 
the produce — , or on mere quantity of the land irrespective 
of value. Since land itself is not private property, since 
land is not bought or sold, the faculty of the taxpayer 
can be measured not by the value of the land, but by the 
value of its produce, which is in some proportion to the 
quantity of the land. Moreover, in early agriculture, where 
tilling is extensive and where expenses of cultivation vary 
but little, the tax on gross produce is a fairly accurate 
test of ability to pay. 

With the advance in population and the necessity of more 
intensive agricultural methods, owing to the decay of the 
primitive communal system and the growth of private prop- 
erty in land, it becomes possible to measure the productivity 
of land in terms of property. Thus the land taxes of this 
newer stage of culture are property taxes, even though the 
value of the property is fixed sometimes according to selling 
value, sometimes according to arbitrary estimates of quality. 
But where the survivals of primitive conditions are strong, 
the value is still measured in terms of yield or produce, 
either actual or computed. In the early middle ages, for 
instance, land taxes were not based directly on the 
selling value, because, although land was private property, 

* In some of the early mediseval tax systems, these were specifically 
termed cattle and land taxes. So the Vieh- und Klauensteuer in Germany. 

it was not bought or sold. The lands had rental value, 
but no selling value, and the tax was assessed not so much 
on the market value as on the produce of land. When the 
American colonies were founded, private property in land 
was well established and the land taxes there very soon 
became property taxes, although we not infrequently find 
examples of the taxation of gross produce rather than of 
property.! With the progress of cultivation and the advance 
in population, the tax on gross produce is supplanted by the 
property tax on market value. 

But now comes a change in the forms of economic life — 
a change that inevitably produces an effect on the public 
conscience and on the accepted ideas of justice. In the first 
place, with increasing prosperity we find a gradual increase 
in the simpler kinds of personal property. The landowner's 
family gradually accumulates money, clothing and luxuries. 
If the general property tax is still to continue a fair 
evidence of individual ability to pay, personal property must 
be taken up into the assessment lists. And this, in fact, 
everywhere occurs. Not only the real estate, but also the 
growing personal estate, is now regarded. At first this per- 
sonalty will consist of tangible, visible objects not easily 
concealed, and constituting a fair index of the citizen's pros- 
perity. The existence of this scanty stock of personalty 
will, however, still be in harmony with the early economic 
system. It is still the landowner who owns the personal 
property, and it is fitting that there should stiU be only the 
general property tax. The economic system has not yet 
materially altered. 

The next change, however, inaugurates a widely different 
stage. The primitive family group or manorial system 
decays. Slavery is gradually broken down by manumis- 
sion or abolition. The commercial instinct grows stronger, 
and trade is no longer limited to the interchange of super- 
fluities between adjacent households. What Aristotle de- 

1 For details see my article on " Income Taxes in the American Colonies/' 
Political Science Quarterly, x. 1896, pp. 233, 234. 









cries as the gainful pursuits become common occupations. 
Capital develops and free laborers appear. The original 
undifferentiated mass of property splits up into separate 
parts. The landlord is no longer the property lord. Per- 
sonal property, in the shape both of productive capital and 
of unproductive wealth, increases at a continually accelera- 
ting ratio. Finally, as in our modern industrial system, the 
movables outrank the immovables. Realty is completely 
overshadowed by personalty, in both extent and influence. 

Now begins the contest between the landed and the moneyed 
interest, between rent and profit. The landowners in med- 
iaeval times, like the farmers in our own time, vainly 
attempt to expand the original property tax so as to include 
all these new forms of property. The capitalist and moneyed 
class either seek to shift the burden by devising the indi- 
rect tax of which we have spoken above, or they attempt 
to escape the burden entirely through evasion or through 
lax administration of the property tax. Where the differences 
in wealth become strikmg and the lower classes are politically 
powerless, the landed proprietors and the traders combine to 
throw the burden on the agricultural laborers and the urban 
artisans, although they may still struggle between themselves 
as to the division of the remainder of the burden. Where 
aristocratic conditions prevail less strongly, as in America 
up to the present time, the laborer fares better, but the 
contest between the farmer and the city resident assumes a 
more acute form. The history of modern taxation is largely 
the history of these class antagonisms. 

IV. Changes in the Basis of Taxation, 

In the meantime the test or standard of individual ability 
has itself undergone a change. With the growing differen- 
tiation of society, the productive powers of the various classes 
themselves differ. Moreover, there are now many forms of 
earnings which are derived not from property but from 
industry. And since it is difficult to capitalize industry, it 

is the product of the industry which now becomes of impor- 
tance. But there is a decided difference between this new 
system of taxes on product, and the original system which 
preceded the first property tax. In the original system 
the tax was on gross produce or on mere quantity of land. 
The land tax was either the tithe or some definite part of 
the estimated produce. Now the tax is on net produce. 
Allowance is made for expenses of cultivation. Two pieces 
of land may yield the same amount, and yet the outlay 
in the one case may have been considerably more than 
the other. To take net, instead of gross, product marks 
another step forward in the evolution of the idea of ability 
to pay. In a state of complete mobility of capital and labor, 
it perhaps makes no difference whether we take the market 
value or the net product of a piece of property; for the 
selling price of property tends to equal the capitalized value 
of the revenue derived therefrom. But in actual life, where 
we often find limitations to this absolute mobility, there 
may be a divergence between the capitalized value of 
the produce and the actual value of the property. Thus 
we find almost everywhere a movement to replace the 
property tax by a system of taxes on net product — on the 
product of land, of capital, of business, of labor, etc. This 
was the stage reached in Europe toward the end of the 
eighteenth and the beginning of the nineteenth century. 

Relatively good as this system was, it was soon seen not 
to be entirely satisfactory. It failed to respond to modern 
economic conditions. It looked at the produce of the source 
of industry, rather than at the recipient of the earnings; it 
was a tax on things, rather than on persons; it abstracted 
from the personal situation of the taxpayer; it made no allow- 
ance for indebtedness. Just as the tax on gross produce was 
defective because it paid no attention to expenses of cultiva- 
tion, so the tax on net produce, while in itself an improve- 
ment, was nevertheless faulty because it paid no attention to 
what may be called the personal expenses of cultivation, i,e, 
the interest on indebtedness. 







W \\ 

w , i: 

Ttus it is that in recent decades the tendency has arisen 
to substitute personal taxes for the older real taxes, and to 
assess the individual rather than the thing ; or, stating it in 
simpler language, to put revenue or income in the place of 
proceeds or earnings as the test of taxation. Just as a 
man's ability to support himself or his family is seen in his 
income or revenue, so, in the same way, it is recognized that 
the test of a man's ability to support the state is to be found 
in this same income or revenue. From the modern point of 
view, it is the duty of the citizen to support the government 
according to his capacity to support himself. Income or 
revenue may not, indeed, be an ideal test ; for there is 
no absolute test which can exactly gauge all the varying 
personal circumstances of each individual. But it is the 
best workable test that governments can secure, and it is in 
harmony with the test imposed on the individual by the 
force of social opinion in regard to his duty to his own 
family. For this reason modern states are everywhere 
changing their revenue systems, so that the taxes shall cor- 
respond, as nearly as possible, to the revenues of the citizens. 
This is the last step in the evolution. But precisely because 
it is a personal tax, rather than a tax on things, it involves 
administrative difficulties and presupposes a definite stage 
of social morality and political probity. Where this stage 
has not yet been reached, it may be better to continue 
the system of taxes on product which form a very rough 
approximation to the revenue of the taxpayer, than to 
attempt a system of income taxes which strives to reach the 
revenue more closely. But whatever may be the momentary 
demand of expediency, the line of development is evident, 
and the ultimate result must necessarily harmonize with the 
facts of economic and social relations. 

Let us test the theory of development as laid down in the 
above pages by a reference to the history of taxation in 
America. It is well known that the primitive revenues of 
the colonies were composed largely of voluntary payments, 

of subsidies or aUowances from abroad, of quit-rents, and 

of occasional fees and fines of early justice. But it has 
usually been overlooked that when the voluntary offerings 
turned into compulsory contributions, the tax systems in 
the various colonies were quite different. 

The New England colonies were democratic communities 
where almost every one owned some land, and where the dis- 
tribution of property was fairly equal. We therefore find as 
a characteristic mark of New England, in addition to the 
primitive poll tax, the tax on the gross produce of land 
either actual or computed according to the quantity or quality 
of the land. This slowly grew into a real property tax, which 
soon expanded into what was nominally a general property tax. 
And this itself was supplemented by a tax on town artisans 
and others who subsisted on the produce not of their prop- 
erty, but of their exertions. To the property tax was now 
added the " faculty " tax. 

In the Southern colonies, which were aristocratic in their 
economic substratum, the land tax played an insignificant 
role, because the large landowners naturally objected to 
bearing the burdens. After the introduction of slavery it 
became difficult to retain even the poll tax, which when laid 
on slaves is practically a property tax on the slave owner. 
Hence we see a system of indirect taxes, mainly on exports 
and imports, falling with special weight on the poorer con- 

Finally, in the middle colonies, above all in New Nether- 
land, the conditions were neither democratic nor aristocratic. 
There was no such approach to equal distribution of wealth 
as in New England, and no such preponderance of the landed 
interest as in Virginia. We find the dominance of the moneyed 
interest or of the trading classes, who brought with them 
Dutch instincts and Dutch methods. Accordingly, there 
was no system of poll and property taxes as in New England, 
and no system of indirect taxes on exports and imports as in 
Virginia. The fundamental characteristic of this system was 
the introduction of the excise system or indirect taxation of 
trade, which was borrowed from Holland, just as we find the 





' 1 1 , 


excise system introduced from Holland into England and the 
other European countries during the seventeenth century. 
Each section, therefore, had a fiscal system more or less in 
harmony with its economic conditions. It was not until 
these conditions changed during the eighteenth century 
that the fiscal systems began somewhat to approach each 
other; and it was not imtil much later that we find through- 
out the country a general property tax, based not on the 
produce, but on the market value of the property. 

The same divergence of economic conditions explains what 
is to-day the most marked distinction in the United States 
between the fiscal systems of the North, the South and the 
West. In the Southern states up to the civil war, the inter- 
ests of the large landed proprietors were still dominant. 
Under the federal constitution, it was impossible for them 
to levy import or export duties. For a time, therefore, 
land, as the only source of wealth, had to defray the public 
charges. In the absence of industrial centres, there was 
little opportunity for taxation of personal property. As 
the need of increased revenues was felt, the landed inter- 
ests attempted to secure this revenue from the few ordi- 
nary occupations carried on outside of the farms and estates. 
In other words, the license or privilege system was estab- 
lished, which levied a fixed charge on well-nigh every 
occupation. It was not until after the middle of the cen- 
tury that the general property tax was introduced ; but even 
to-day the license or privilege taxes yield a large share of 
the public revenue. 

In the Northern states, on the other hand, where the busi- 
ness interests were more powerful, the license or privilege 
system never attained such a firm foothold. But with the 
breakdown of the general property tax, the attempt of the 
general public to secure a taxation of the moneyed interests 
has taken the form of taxation of corporations and of capital. 
There are plainly visible the beginnings of a system of taxa- 
tion of net product. Finally, in the Western states, where 
the economic conditions are as yet more primitive, there 



have been only sporadic attempts to alter the general prop- 
erty tax, which there is still to a great extent a tax on real 
estate. But with the gradual unification of economic condi- 
tions, which is slowly taking place throughout the entire 
country, we may expect that the systems of taxation will 
become more nearly uniform, until the results of modern 
industrial and democratic development will finally appear 
here, as they are appearing in other parts of the world. 
The recent attempt to introduce a federal income tax, how- 
ever defective the measure may have been, is a significant 
evidence of the trend. That this attempt will ultimately 
be followed by others, not necessarily precisely similar, but 
yet indicative of the same general movement, is by no means 

From the above survey one fact stands out prominently. 
Amid the clashing of divergent interests, and the endeavor 
of each social class to roll off the burden of taxation on 
some other class, we discern the slow and laborious growth 
of standards of justice in taxation, and the attempt on the 
part of the community as a whole to realize this justice. 
The history of finance, in other words, shows the evolution 
of the principle of faculty or ability in taxation — the prin- 
ciple that each individual should be held to help the state 
in proportion to his ability to help himself. In the earliest 
indirect pajrments there was no idea of equity, but only of 
force. But with the advance of civilization and social ethics, 
we reach the first stage of rude equality in the poll tax. 
Step by step the revenue system advanced to successively 
higher planes. Expenditure, property, product — each of 
these in turn was considered the test of individual capacity 
and obligation toward the state; until finally in modern times 
revenue or income has come to be regarded as the most equita- 
ble and the most practicable measure of individual and social 
faculty. To arrange a system of taxation which shall, on the 
whole, correspond as closely as possible to the net revenues 
of individuals and social classes, and which shall take into 

I I 






account the variations in tax-paying ability, has thus become 
the demand of modern civilization. But unless this system 
is in harmony with the external structure and the inter- 
nal conditions of modern economic life, it is foredoomed 
to failure. If the history of taxation teaches any one lesson, 
it is that all social and moral advance is the result of a ^low 
process and that while fiscal systems are continually modified 
by the working out of ethical ideals, these ideals themselves 
depend for their realization upon the economic forces which 
are continually transforming the face of human society. 



There is perhaps no single feature of our modern tax 
system that is commonly thought to be more thoroughly 
American than the general property tax. The proportional 
taxation of all property is held to be the result of an instinc- 
tive feeling original to and thoroughly ingrained in the minds 
of the American people. And yet it may be said that few 
institutions have evoked of late more angry protests and 
more earnest dissatisfaction than this very tax. The reason 
is plain. As long as prosperity was general and the public 
expenses were small, taxation was light and its burden was 
scarcely felt. But during the last few decades, with the com- 
plicated demands of modern civilization, public expenditures, 
both local and national, have increased to such an extent as to 
exert a sensible pressure on the population. The problems of 
public revenue have been pushed to the front. The expres- 
sions of discontent with various phases of the financial system 
have become numerous and loud. But for the most part the 
discussion has been superficial and the conclusions reached 
have been inadequate. 

The opponents of the general property tax have confined 
themselves to a portrayal of its practical shortcomings. No 
one has hitherto attempted to give the deeper reasons why 
the property tax is unsuited to the present generation, or to dis- 
cuss the subject in its wider relations to the science of finance. 
It is proposed in this chapter to show that the property tax 
18 by no means original to America, but that it has gone 
through precisely the same evolution in many other places. 
It IS further proposed to prove that the property tax is as 



t I 


destitute of theoretical justification as it is defective in its 
practical application. And it is proposed, finally, to discuss 
the reforms of our direct taxation — some of them partly 
completed, some projected, and some hitherto neglected. 

I. Practical Defects. 

The defects of the general property tax may be treated 

under five heads.^ 

1. Lack of uniformity, or inequality of assessment, ihe 
property tax with us is an apportioned, not a percentage tax. 
According to the latter method, the tax would be levied on 
the individual taxpayer by means of a fixed rate or percent- 
age of all property. According to the actual method, the 
total amount to be raised by the state is first ascertained 
and is then apportioned to the various subdivisions accord- 
ing to the appraised valuation in each. The final rate of 
taxation is obtained by adding the local tax to the state tax. 
The rate of taxation ought therefore to vary only with the 
local needs, and would indeed so vary if property were 
everywhere assessed uniformly. As an actual fact, however, 
this is far from being the case. In most of the common- 
wealths the tax laws provide for the assessment of property 
at its " fair cash value." And in all the states it is expected 
that the valuation shaU everywhere be made at a uniform 
rate. Yet it is a notorious fact that in scarcely any two 
contiguous counties is the property — even the real estate — 
appraised in the same manner or at the same rate. In regard 
to the manner, it frequently happens that corporation prop- 

1 In a monograph by the present writer entitled Finance StaUstics of the 
American Commonwealths (Publications of the American Statistical Asso- 
ciation. Dec. 1889) may be found a large number of citations from the com- 
monwealth financial reports for the preceding year. The reader is referred 
to that publication for the verification of statements ^^^ Ynf^^T 
authority is adduced in these pages. See especially pp. 401-417. Many 
facts and figures may also be found in Ely, Taxation in American States 
and CUies, 1887. See also, for some striking statistics, T. G. Shearman, Taxor 
tion of Personal Property, impracticable, unequal and unjust, 1895. 



erty, e.g. the roadbed of a railway, is assessed in one county 
at an immense sum per mile and is treated in the adjacent 
county like a piece of grazing land.^ In regard to the rate, 
the assessors follow the practice sanctioned by local usage, or 
decide by mere caprice. The official reports abound with 
complaints or open confessions that property is assessed all 
the way from par to one twenty-fifth of the actual value. 
In one county the property is listed at its full worth ; in the 
next county the assessment does not exceed a tithe of its 
value. 2 That this is a glaring infraction of the fundamental 
rule of equality in taxation is apparent. As between coun- 
ties it leads to undervaluations which give an entirely falla- 
cious view of the public resources; as between individuals 
it results in gross injustice. A tax rate of a given amount 
on one may be double, quintuple, or decuple the nominally 
equivalent tax on another. The first constitutional injunc- 
tion — that of uniformity of taxation — is flagrantly violated. 
Assessors are compelled openly to disregard their oaths, or to 
incur certain defeat at the next election.^ There is no pre- 
tence of complying with the law. 

An escape from these evils has been sought in the crea- 
tion of boards of equalization. A number of common- 
wealths* have attempted to correct the undervaluation of 

1 In New York, for example, two adjoining counties made a difference of 
$24,000 per mile in assessing the same railroad. Other counties varied 
#20,000 per mile. Beport of the State Assessors, 1879, p. 19. 

2 Biennial Report of the Auditor of Public Accounts of Nebraska, 1886, 
p. 4. In New York the range is from 100 to 18 per cent. Report of the 
State Assessors, 1883, p. 3. In Illinois the range is from 100 to 5 per cent 
Report of the Revenue Commission of Illinois, 1886, p. ii. 

» Report of the State Assessors of New York, 1886, p. 20. The report for 
1884, p. 4, speaks of the assessors' open " intent to ignore the law." In one 
case an assessor objected to a certain declaration, and asserted that it would 
be necessary to swear the merchant. The latter answered : " If you swear 
me, I'll vote against you next time." West Virginia Tax Commission, 
Preliminary Report, 1884, p. 13. 

* Boards of equalization are found in Arizona, California, Connecticut, 
Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Mis- 
souri, Montana, Nebraska, North Dakota, New Hampshire, New Jersey, New 
Mexico, New York, Ohio, Oregon, South Carolina, South Dakota, Tennessee, 





j t 




the county ofiBcials by giving a state board power to raise 
or lower the valuations (or in some cases the rates) in the 
hope of securing a substantial uniformity. In a few states, 
like South Carolina and New York, the power extends only 
to the equalization of real estate assessments. In some cases, 
as in Illinois, New Jersey, New Mexico and Tennessee, the 
board may change the valuations of individuals also. But in 
most cases its function is confined to the equalization of 
county assessments, while the county boards deal with assess- 
ments of individuals. These efforts, however, have been 
very imperfectly successful. The composition of the boards 
is such as to render any comprehensive scrutiny of the 
county returns almost impossible. Even were the boards 
to be ideally constituted the local jealousies and bickerings 
would still continue to prevent any just distribution of the 
burdens.^ The officials themselves confess that such distri- 
bution cannot be secured under the present system.^ Boards 
of equalization are thus at best mere makeshifts, — clumsy 
attempts to accomplish the impossible. As it has been 
drastically put: "A people cannot prosper whose officers 
either work or tell lies. There is not an assessment roll 
now made out in this state that does not both tell and work 
lies." ^ As ]ong as this is true, boards of equalization are 
of little avail. 

Utah, Washington, Wisconsin and Wyoming. In some states the boards of 
equalization have to deal only with the assessment of corporate property. 
So in Alabama, Colorado and Maryland. County boards of equalization exist 
in most of the states, even when state boards are unknown. 

1 "The strife between counties to reduce assessments has not ceased and 
in all probability will not, as long as assessors are elected, or selfishness be 
a passion in the human breast." Heport of the California State Board of 
Equalization, 1885 and 1886, p. 4. 

2 ''No board of officials, however diligent or however conversant they 
may be with the subject, can make an equalization which to themselves will 
be absolutely satisfactory." Annual Report of State Assessors of New York, 
1887, p. ii. From ocean to ocean the same complaint is found. 

» M. I. Townsend, in Proceedings and Debates of the Constitutional Con- 
vention of New Torky 1867-68, iii., p. 1945. Cf the first Report of the (New 
York) Commissioners to revise the Laws for the Assessment and Collection 
«/ Taxes, 1871, p. 33. 



2. Lack of universality^ or failure to reach personal 
property. This defect although the most flagrant, per- 
haps requires the least comment; for it is so patent that 
it has become a mere byword throughout the land. Per- 
sonal property nowhere bears its just proportion of the 
burdens ; and it is precisely in those localities where its 
extent and importance are the greatest that its assessment 
is the least. The taxation of personal property is in inverse 
ratio to its quantity ; the more it increases, the less it 
pays. The reason is plain. So far as it is intangible, per- 
sonal property escapes the scrutiny of the most vigilant 
assessor ; so far as it is tangible, it is purposely exempted in 
its chief form, as stock in trade, in our commercial centres. 
In the mad race for wealth it is considered dangerous for the 
local assessors in large cities to list the merchant's capital, 
with the possible result of driving it away to localities more 
favored by their financial officers. It is scarcely necessary 
to give figures to substantiate these statements; but a few 
facts, taken from the official documents, national, state and 
municipal, may be of interest. 

The tenth census of the United States asserts that from 
1860 to 1880 the assessed valuation of real estate increased 
from 6,973 millions of dollars to 13,036 millions, while that 
of personal property decreased from 5,111 to 3,866 millions. 
In 1890 the assessed valuation of real estate had grown to 
18,956, while that of personal property was 6,516 millions, — 
less than the figures of thirty years before. In California per- 
sonal property was assessed in 1872 at 220 millions of dollars, 
in 1880 at 174 millions, and in 1887 at 164 millions, —a net 
decrease m fifteen years of b^ millions. Real estate increased 
during the same period from 417 to 791 millions. Personal 
property paid 17.31 per cent, real estate 82.69 per cent of the 
taxes. By 1893, although the assessed value of real estate 
was 1000 millions, that of personalty was only 173 millions. 
In Illinois in 1882 personal property paid 22.01 per cent 
of the taxes, in 1894 only 17.26 per cent. In Cook County 
(including Chicago), personal property paid only 14 per cent; 

I' 'V 








in Kankakee County, only 11 per cent. In Iowa, while the 
real estate valuation in 1893 increased over that of the pre- 
ceding year by 32 million dollars, the assessed valuation of 
personal property actually decreased. In New York the 
figures are as follows : 


1843 % 476,999,000 

1859 1,097,564,000 

1871 1,599,930,000 

1878 2,373,418,000 

1888 3,122,588,000 

1893 3,626,646,000 

PiRSONAL Property. 


The proportion paid by personal property has decreased 
steadily almost every year, until according to the last figures 
it pays but 9.99 per cent of the state taxation, as against 
90.01 per cent falling on real estate. In twenty-five years 
the valuation of real estate has increased 12,000,000,000; 
that of personalty has diminished about f 40,000,000. In the 
District of Columbia the valuation was in 1878 : realty 83 
millions, personalty 17 millions ; in 1894 realty had increased 
to 160 millions, personalty had decreased to 11 millions. In 
New Jersey, in 1887, in one township the real estate was 
assessed at $272,232, the personal property at $591; in 
another the figures were 12,274,900 and 147,150 respec- 
tively. In New York the personalty was returned in one 
town at #5000, in the adjoining but no more prosperous 
town at $700,000. Perhaps the most remarkable figures 
are found in the large cities. In Cincinnati the valuation 
in 1866 was: realty, $66,454,602; personalty, $67,218,101. 
In 1892 the realty had increased to $144,208,810 ; the per- 
sonalty had decreased to $44,735,670. In Monroe county, 
New York, in which the city of Rochester is situated, the 
realty was assessed in 1892 at $132,202,478 ; the personalty 
at $8,408,803. Finally, in the city of Brooklyn in 1893 real 
estate was assessed at $486,497,186, while personalty was 
valued at $19,123,170. Personal property, in other words, 
paid a little more than three per cent of the whole tax on 

property. In 1895 the proportion fell still lower, — to one 
and twenty-three hundredths per cent. 

These striking figures become ridiculous when it is re- 
membered that in our modern civilization the value of per- 
sonal property far exceeds that of real estate, as understood 
by the taxing power. It is true that the legal distinction 
between real and personal property fluctuates in the various 
commonwealths ; but in the eyes of the assessors real estate 
generally includes only land and the fixtures thereto, all the 
other forms of wealth being regarded as personal property. 
In California, indeed, the constitution of 1879 provides that 
mortgages of real estate shall be regarded and taxed as realty. 
This is true also in Massachusetts. But even if mortgages 
were counted as real estate, and even if (as is nowhere done) 
other certificates of ownership in realty were also counted as 
real estate, it would still remain true that personal property 
constitutes the greater part of the national w^ealth. For per- 
sonal property does not denote merely movable objects. It 
includes money, public obligations and the vast mass of 
intangible property represented by securities of corporations, 
of which only a small portion are certificates of ownership 
m realty. Above all, personal property includes the entire 
and ever-increasing annual products of agriculture and in- 
dustry —the gigantic mass of modern wealth devoted mainly 
to consumption, but existing as the stock in trade of indi- 
viduals. Even in our western commonwealths, where the 
communities are still mainly agricultural, it is an acknowl- 
edged fact that the personalty exceeds the realty. The 
auditor of Washington tells us that, if a true valuation could 
be reached, it is " clear and incontestable that the wealth of 
the territory in personal property, for the purposes of taxa- 
tion, would largely predominate over that of real estate." i 
And if this is true of the far West, how much greater must 
be the relative proportion of personalty in the busy marts 

1 Beport of the Territorial Auditor to the Legislative Assembly, 1887, p. 
94. Cf. Biennial Beport of the Auditor of Iowa, 1881, p. 8, and that of the 
Comptroller of Idaho, 1887-88, p. 74, to the same effect. 


. i 


1 1 

« I 



, i 




of the East.i Yet the more differentiated the industry and 
the more predominant the personalty, the less does the latter 
contribute to the public charges ; until in the foremost state 
of the Union realty pays more than nine-tenths and per- 
sonalty less than one-tenth ; while in its second largest city 
realty pays ninety-nine hundredths and personalty only one 
hundredth of the tax. 

The taxation of personal property, therefore, is in inverse 
ratio to its quantity. The more it increases, the less it pays. 
The general property tax thus sins against the principle of 
universality of taxation even more than against the principle 
of uniformity. In the middle ages whole classes were exempt 
by express provision of the law ; in our time and country 
whole classes are exempt by the inevitable working of the 
law. It is the law which is equally at fault in both cases. 

3. Incentive to duhonesty. One of the worst features of 
the general property tax is that any attempt to enforce the 
taxation of personalty by more rigid methods results in 
evasion and deception. The property tax necessarily leads 
to dishonesty, and this for two reasons. In the first place, 
under our system, whole classes of personalty are exempt 
from state taxation. The most familiar examples are im- 
ported merchandise in the original package ; United States 
bonds, notes, checks and certificates ; property in transitu; 
goods produced in another state sent on commission ; deposits 
in savings banks, etc. The temptation for the taxpayer to 
convert his property temporarily into these classes is gener- 
ally irresistible. Not only does the law hold out to individ- 
uals inducements to practise fraud, but it sustains them in 
its commission.2 Secondly, wherever any pretence is made 

> Cf. New York State Assessors' Report, 1880, and Comptroller's Report, 
1889, p. 33 : "I am sure that the actual value of the personal property 
legally liable to taxation exceeds that of the real estate." 

2 In People ex rel. Ryan, 88 N. Y. 142, the Court of Appeals held that the 
assessors were bound by a transaction which the court itself declared to be 
" a device to escape taxation." In 1892, however, a law was passed in New 
York requiring applicants for reduction of assessment to make oath that they 
had not incurred debts for the purpose of avoiding taxation. 



of enforcing the tax on personalty, and especially where the 
taxpayers are required to fill out under oath detailed blanks 
covermg every item of their property, the inducements to 
perjury are increased so greatly as to make its practice 
universal. The honest taxpayer would willingly bear his 
fair share of the burden; but even he cannot concede his 
obligation to pay other men's taxes. The only result of 
more rigid execution of the law is a more systematic and 
widespread system of deception. Official documents tell us 
that " instead of being a tax upon personal property, it has 
in effect become a tax upon ignorance and honesty. That is 
to say, its imposition is restricted to those who are not 
informed of the means of evasion, or, knowing the means, 
are restricted by a nice sense of honor from resorting to 
them."i The tax commission of New Hampshire declares 
that " the mere failure to enforce the tax is of no importance, 
in itself considered, in comparison with the mischief wrought 
in the corrupting and demoralizing influences of such legis- 
lation. "2 The Illinois commission asserts that the system is 
"debauching to the conscience and subversive of the public 
morals — a school for perjury, promoted by law."* The 
Connecticut commission maintains that the resulting "de- 
moralization of the public conscience is an evil of the greatest 
magnitude."* A late New York report states that "it 
puts a premium on perjury and a penalty on integrity." « 
The Ohio commission tells us that " it results in debauch- 
ing the moral sense and is a school of perjury, imposing 
unjust burdens on the man who is scrupulously honest. '*« 
The recent Cleveland commission says that "the existing 
system is productive of the gravest injustice; under its 

* Report of the Commissioners of Taxes and Assessments in the City of 
New York, 1872, p. 9. 

2 Report to the Legislature by Hon. George Y. Sawyer, 1876, p. '16. 
« Report of the Revenue Commission, 1886, p. 8. 

* Report of the Special Commission on Taxation, 1887, p. 27. Cf. the 
New Jersey Tax Commission Report, 1880, p. 11. 

6 Report of Counsel to revise the Tax Laws of New York, 1893, p. 12. 
« Report of the Tax Commission of Ohio, 1893, p. 22. 







sanction, grievous wrongs are inflicted upon those least able 
to bear them ; these laws are made the cover and excuse for 
the grossest oppression and injustice ; above all and beyond 
all, they produce in the community a widespread demorali- 
zation; they induce perjury; they invite concealment. The 
present system is a school of evasion and dishonesty. The 
attempt to enforce these laws is utterly idle.''^ The West 
Virginia commission tells us that " the payment of the tax 
on personalty is almost as voluntary and is considered pretty 
much in the same light as donations to the neighborhood 
church or Sunday-school. " * And almost every annual report 
of the state comptrollers and assessors complains bitterly 
that the assessment of personalty is nothing but an incentive 
to perjury.^ 

4. Regressivity, Taxes are progressive when their increase 
is more than proportional to the increase of the property or 
income taxed, i.e. when the rate itself increases with the in- 
crease of the property. Taxes are regressive when the rate 
increases as the property or income decreases. The general 
property tax in its practical effects is often regressive, since the 
tax on personalty is levied virtually only on those who already 
stand on the assessor's book as liable to the tax on realty. 
Those who own no real estate are in most cases not taxed at 
all ; those who possess realty bear the taxes for both. The 
weight of taxation really rests on the farmer, because in the 
rural districts the assessors add the personalty, which is gen- 
erally visible and tangible, to the realty, and impose the tax 
on both. We hear a great deal about the decline of farming 
land. But one of its chief causes has been singularly over- 
looked. It is the overburdening of the agriculturist by the 
general property tax. What is practically a real property tax 
in the remainder of the state becomes a general property tax 
in the rural regions. The farmer bears not only his share, 

1 Jteport of the Special Committee on Taxation of the Cleveland Chamber 
of Commerce^ 1895, p. 10. 

2 Preliminary Beport of the Tax Commission, 1884, p. 10. 

* Cf Report of California Board of Equalization^ 1885-86, p. 6. 


but also that of the other classes of society. Thus official 
documents tell us that " the class of property that escapes 
taxation most is the class of property that pays the largest 
dividends." ^ And in general it may be said, with our state 
auditors, that " the property of the small owner, as a rule, is 
valued by a far higher standard than that of his wealthy 
neighbor." 2 Qr, as it is put by others: ."In every portion 
of the state we find the most unproductive property, and that 
of the lowest real value, assessed at the highest ratio. The 
rule holds good that those who have to battle hardest with 
life for subsistence, are compelled to pay the most onerous 
taxes on the real value of their property."^ 

It is no wonder that in their desperation the small farmers 
should cry out for the equal enforcement of the laws taxing 
personalty ; it is no wonder that they should attempt to stem 
the current in ignorance of the impossibility of the task. 
They have forgotten Walpole's saying, that it is safer to tax 
real than personal estate, because " landed gentlemen are like 
the flocks upon their plains, who suffer themselves to be 
shorn without resistance ; whereas the trading part of the 
nation resemble the boar, who will not suffer a bristle to be 
pluckt from his back without making the whole parish to 
echo with his complaints."* 

5. Double Taxation. Double taxation, as we shall see later 
on, is of various kinds. But there is one form which is par- 
ticularly applicable to the property tax, namely that of debt 
exemption. This is perhaps the greatest weakness of the 
general property tax, and the one which has given rise to 
the most interminable discussion. 

On the one hand it is maintained that an offset should be 
made for all indebtedness, whether mortgage debts on real 
property or general liabilities on personalty. Individuals 

1 Biennial Beport of the Auditor oflowa^ 1880-81, p. 6. 

2 Biennial Beport of the Auditor of Kentucky, 1887, p. iv. 

» Beport of the State Assessors of New York, 1873, p. 9. Cf. West Vir- 
ginia Tax Commission, Preliminary Beport, 1884, p. 8 ; Beport of the Comp^ 
troller of Tennessee, 1888, p. 16. 

* Cf. Sinclair, History of the Public Bevenue, Yol. iii., appendix, p. 79. 






♦ • 





should be taxed on what they own, not on what they owe. 
To tax both borrower and lender is double taxation. This 
is the view of the Connecticut commission, ^ and the practice 
of most of the states accords with it. On the other hand, the 
majority of American investigators assert that deduction for 
indebtedness results practically in such injustice and decep- 
tion as to be utterly unendurable. They therefore demand 
that there shall be no offset of debts against property. 
This is the view of the Massachusetts and New Jersey com- 
missions,2 and the practice in some states like Pennsylvania, 
Georgia, Kentucky, Louisiana, Maryland and Missouri. 

Both these views are correct. To tax both lender and 
borrower for the same property is plainly double taxation, 
and therefore unjust. The fallacy of the contrary opinion 
consists in looking at the property rather than at the owner. 
What the state desires to reach is primarily the individual. 
It taxes his property simply because it considers this a test 
of his ability to pay. But his ability is manifestly reduced 
fro tanto by his debts. His true taxable property therefore 
consists in his surplus above indebtedness. Otherwise one 
would be taxed for what he has, and another for what he has 
not. As it has been well put, what we want to tax is ability, 
not liability. This is the view accepted by all European 
authorities.3 The only American scientist who holds to the 
contrary opinion, Amasa Walker, does so in a half-hearted 
way ; for he bases his view on utterly arbitrary data, con- 
fesses that much hardship will ensue, and finally concludes 
that the income-tax principle is the only just one.* To tax 
both property and credits, both lender and borrower, is 
plainly incorrect in principle and inequitable in practice. 

On the other hand it is equally true that deduction for 
debts is thoroughly pernicious in its operation. It is the 

1 BepoH of the Commission of 1887, p. 26. 

2 Massachusetts Commission, 1875, pp. 95-98 ; New Jersey Commission, 
1880, p. 20 ; Commission of 1891, Preliminary Report, p. 10. 

» Roscher, Finajizwissenschaft, p. 336 ; Wagner, Finanzmssenschaft, iL, 
p. 432. 

« A. Walker, Science of Wealth (7th edition), p. 339. 

« ; 



universal testimony that no portion of the tax laws offers 
more temptations to fraud and perjury than this system of 
offsets. The creation of fictitious debts is a paying invest- 
ment. In the states where such deductions are permitted, 
attempts to obtain immunity from taxation in this way are 
widespread and generally successful. And they are most suc- 
cessful in the case of property which already bears less than 
its share of the burdens. The great majority of officials 
cry out against debt-exemption as an utter abomination. ^ 

Both methods are thus unendurable. Debt-exemption 
and no debt-exemption are equally bad. The states shift 
from one policy to the other in equal despair. We are 
therefore forced to the conclusion that the whole system 
is unsound. The fault lies not in the exemption, but in 
the taxation, of property. The general property tax under 
either of these two methods produces crying injustice. As 
there is no third method possible, the inference is that the 
injustice is of the essence of the general property tax. 
The New York commission, indeed, came to the con- 
clusion that mortgage debts should be deducted from 
realty, but that there should be no offset for debt in 
the assessment of personalty.^ This would be a legal dis- 
crimination wholly subversive of the first principles of 
justice. As a matter of fact, just the contrary principle 
prevails at present in New York and Connecticut ; debts are 
there deductible only from personalty. There is no logical 
escape from one of the two methods, debt-taxation or debt- 
exemption ; and under either plan the general property tax 
stands convicted by the test of experience. 

Under a system, indeed, where there is no general prop- 
erty tax, but simply a tax on real estate, the question of 
taxing mortgages assumes a different aspect and must be 
decided independently. As that problem is discussed else- 

1 Report of the Commissioners of Assessment and Taxation in Oregon, 
1886, p. 9. 

2 First Report, 1871, pp. 60-69, 71-79. Cf the sharp criticism in the 
Massachusetts Tax Commissioners^ Report, 1875, p. 96. 




. I 










where in this volume,^ it may be omitted here. But as soon 
as we have the general property tax and exempt mortgage 
debts on real estate, the exemption must consistently be 
accorded to all debts. And we are then immediately con- 
fronted by the dilemma just discussed. 

If we sum up all these inherent defects, it will be no 
exaggeration to say that the general property tax in the 
United States is a dismal failure. No language can be 
stronger than that found in the reports of the officials 
charged with the duty of assessing and collecting the tax. 
Whole pages might be filled with such testimony from the 
various states. Only the following extracts from the New 
York reports are given, as samples : 

A more unequal, unjust and partial system for taxation could 
not well be devised.^ 

The defects of our system are too glaring and operate too 
oppressively to be longer tolerated.' 

The burdens are so heavy and the inequalities so gross, as 
almost to paralyze and dishearten the people.* 

The absolute inefficiency of the old and rickety statutes passed 
in a bygone generation [is patent to all].* 

The hope of obtaining satisfactory results from the present 
broken, shattered, leaky laws is vain." 

The system is a farce, sham, humbug.^ 

The present result is a travesty upon our taxing system, which 
aims to be equal and just.* 

[The general property tax is] a reproach to the state, an outrage 
upon the people, a disgrace to the civilization of the nineteenth 
century, and worthy only of an age of mental and moral darkness 
and degradation, when the " only equal rights were those of the 
equal robber." • 

^ Infra^ chap, iv., sec. 1. 

2 First Annual Beport of the State Assessors, 1860, p. 12. 

« Comptroller's Beport, 1859. < Assessors' Report, 1873, p. 3. 

• Assessors* Beport, 1877, p. 5. 

• Beport of Commmissioners of Taxes and AssessmerOs, 1876, p. 52. 
' Assessors' Beport, 1879, p. 23. 

• Comptroller's Beport, 1889, p. 34. » Assessors' Beport, 1879, p. 7. 



After such self-criticism nothing more need be said. In 
comparison with this, the view of the European scientists 
is moderate, that " a cruder instrumentality of taxation has 
rarely been devised." ^ And yet, notwithstanding all this 
criticism, our methods limp along almost unchanged. 

II. History of the Property Tax. 

In the previous chapter we have learned how direct taxation 
begins, and have seen that the primitive form is the land tax 
or tax on real estate. We also noticed the process by which 
the original mass of property is gradually broken up, and 
personal property slowly assumes a greater importance in 
the wealth of the community. Let us study a little more 
in detail the subsequent history. 

The monarch, or public opinion as reflected in the govern- 
ment, seeks to conform the practice of taxation to this change 
in economic facts. The property tax continues, but the as- 
sessor tries to make the tax equable by including not only the 
realty, but also all these new forms of personalty, whether 
corporeal or incorporeal. The original land tax is supple- 
mented by other taxes, or expanded into a general property 
tax. The attempt is intelligible and even laudable ; for it 
is simply the manifestation of the ideas of equality and uni- 
versality of taxation. Personal property must not escape ; 
ergo^ it must be included in the designation of general prop- 
erty and taxed equally with the real property. 

The attempt is laudable, but it is futile. Personalty will 
evade the most inquisitorial assessor. Wherever tried, the 
general property tax again resolves itself into the real prop- 
erty tax. History shows us that this has always been the 
case. The more complex the industrial development^ the more 
inevitably does this process take place and the more surely 
does the general property tax virtually revert to its primi- 
tive form of real property tax. Not alone history, but theory, 

1 Leroy-Beaulieu, Science des Finances (5™* 6d.), lit., p. 498 : " Rarement, 
dans la fiscalit6 modeme, on a invent^ d' instrument plus grossier.'* 









I i 



shows US that this must be so. For the general property tax, 
as we have seen, originated with and is calculated for an 
economic system where the only property is the collective, 
indivisible property, where the landowner and capitalist are 
one. There is one kind of property, and therefore one kind 
of property tax. But as soon as property is split up into 
different parts, as soon as there are various kinds of property, 
just so soon does the single property tax become antiquated 
and useless. It is not only useless, but it is now absolutely 
iniquitous. For the attempt to include under one head the 
gains flowing from widely different pursuits — pursuits 
whose number and divergence are limited only by the weU- 
nigh boundless variety of individual capacity—, this attempt 
to reduce the multiform to the uniform can end only in the 
virtual exemption of the new forms and a consequent over- 
burdening of the old. What has been conceived in the 
spirit of justice develops into an embodiment of injustice. 
What has been in its origin an attempt to attain equality 
results in gross inequality. 

Because of the evident impracticability of the general 
property tax, governments now begin to fit their theories of 
taxation to the economic facts. They abandon the attempt 
to make the new facts conform to the old theories. As vari- 
ous forms of personalty graduaUy set themselves free from 
taxation, the state reasserts the principle of equality. But 
it now recognizes the existing facts and abandons the fiction 
of the general collective property. As property spHts up 
into its various elements, new taxes are laid, one by one, not 
on the property but on the separate sources of this new wealth. 
The old land tax may be retained, but other taxes are imposed 
in various forms. Taxes on vocations, on professions, on 
trade, on commerce, on profits, on interest, on wages and 
salaries, foUow in quick succession, until finaUy the theories 
and practice of taxation are in harmony with actual condi- 
tions. One by one these various sources of wealth drop 
off from the antiquated general property tax only to receive 
a new life in these fresh forms. The feeling of equity in 



the public consciousness cannot be put down. What escapes 
under one form it attempts to reach under another. Fiscal 
theory cannot long lag behind the facts of industrial life. 

Let us test the truth of these statements by an appeal to 
history. Let us trace, in other words, the actual develop- 
ment of the general property tax.^ 

In antiquity direct taxation was treated as an extraordi- 
nary source of revenue. The Athenian direct tax (etV^opa), 
as levied in the time of Solon (b.c. 596), was nominally a 
classified property tax, but in reality a land tax.^ With the 
increase of wealth an attempt was soon made to reach per- 
sonalty ; but its success is entirely conjectural. We simply 
know that under Nausinicus (B.C. 380) the bases of taxation 
were not only land and houses, but also slaves, cattle, furni- 
ture and money. It has been claimed, however, that the 
tax had by that time become a progressive income tax.' At 
all events there is no proof that the tax on intangible per- 
sonal property as such was at all successful. 

In Rome the direct tax (trihutum civiurn)^ which was some- 
times even treated as a forced loan to be repaid out of the 
proceeds of conquest, was levied only to meet extraordinary 
expenses for which the proceeds of domains (the vectigalia) 
did not suffice. As Rome was at first an agricultural com- 
munity, the real " quiritarian " property alone recognized by 
law consisted solely of land and the capital affixed to land, 
like houses, slaves and cattle. These were the reB mancipi^ 
But the property tax was assessed only on the land, on the 

1 The only attempt thus far made to discuss this subject is that of Farieo, 
Histoire des Impots Generaux sur la Propriete et le Bevenu (1866). But 
this is inexact, inadequate, unclear and antiquated. 

2 Boeckh, Public Economy of the Athenians, book iv., chap. 5. 

» This is claimed by Rodbertus, in Hildebrand's Jahrhucher^ viii., pp. 453 
et seq. For the other view see the complicated interpretation of Boeckh 
(p. 669 of the American edition). 

* " Mancipi res sunt praedia in Italico solo, tam rustica, qualis est fundus, 
quam urbana, qualis domus; item jura praediorum rusticorum, velut via, 
iter, actus, aquaeductus ; item servi et quadrupedes, quae dorso coUove do- 
mantur, velut boves, muli, equi, asini. Ceterae res nee mancipi sunt.** 
Ulpian, 19, 1. Cf. Gaius, i., p. 120 ; ii., pp. 15-17. 







assumption that every acre of land would require a definite 
quantity of this productive capital.^ The early Roman 
property tax was therefore in effect a tax on realty, analog- 
ous to the early elatpopd.^ With the development of trade 
and industry in the later days of the republic, the character 
of property underwent a change. The amount of personalty 
increased. If the trihutum was to remain a general property 
tax, it would be necessary to assess also these new forms 
of property. And, in truth, the attempt was made. Not 
only farming implements, but ships, carriages, money, gar- 
ments, ornaments, etc,^ were listed.^ But it must be remem- 
bered that the only personalty assessed still consisted of 
visible, tangible objects, although the censors had practically 
unlhnited power to take up any property into the tax -list 
(censvLB), There is no evidence to prove that trading capital 
proper was at all taxed.* And it is useless to speculate what 
might have been the result during the last period of the 
republic ; for further progress in this direction was checked 
by the fact that, with one isolated exception, the republic 
levied no direct property tax at all on the Roman citizens 
after 167 B.C. Whether the trihutum civium was again em- 
ployed during the empire is a moot question. The weightier 
arguments seem to be on the side of those who maintain 
that it was never again made use of in its old form.^ 
In the provinces the property tax was nothing but a land 

1 Marquardt, Bomische Staatsverwaltung (2d edition), ii., p. 166. 

* Except that it was not a graduated tax, and was levied on the market 
value, not the produce. 

» Matthias, Bomische Grundsteuer und Vectigalrecht, 1882, p. 6. The lead- 
ing ideas of Matthias are translated in Humbert, Essai sur les Finances chez 
les Bomains, ii., pp. 328 et seq. 

* The only one who maintains the contrary is Walter, Geschichte des 
romischen Bechts (3d edition) i., p. 271. But the passage of Livy to which 
he refers (vi., 27) does not bear out his assertion. Walter stands quite 

* Rodbertus, Hildebrand's Jahrbiicher, iv., pp. 408-427, and Hegewisch, 
Bomische Finanzen^ p. 1346, maintain its existence. But Savigny, Ver- 
mischte Schnften, ii., pp. 151, 186 ; Buschke, Ueber den Census zur Zeit 
Christiy pp. 70, 190; Mommsen, Bomische Geschichte, ii., p. 387; and Mar- 



tax — either a tax on the value (trihutum soli), or a tithe 
(decuma)^ or a ground rent (yectigal certum or stipendium^. 
In addition to the land tax proper we find the poll tax (tri- 
hutum capitis^ which, in some of the older provinces where 
the remains of an enterprising commercial life still existed, 
probably included a tax on classes or professions or a nominal 
general property tax.^ 

The Roman property tax was therefore virtually a tax on 
land and the little productive capital affixed to land. Per- 
sonalty, so far as it was assessed at all, consisted of the 
meagre tangible objects owned by an agricultural people. 
The Romans had a general property tax because, as in 
Greece, there was only one kind of property — the collective 
property owned by slave-holding landed proprietors. 

Under the empire industrial society began to differentiate. 
Caligula (a.d. 37-41) took advantage of this to levy taxes 
on special classes, above all on carriers, prostitutes and 
pimps.2 Trading capital, everywhere the first element to 
separate itself from the collective mass of property, was 
reached for the first time by Vespasian (69-79) in the curi- 
ous tax on the private owners of city urinals and closets.^ 
Finally, shortly before Caracalla (211-217) we find a general 
tax on commercial capital, known henceforth as aurum nego- 
tiatorium. But what a singular commentary it is on the 
progress of civilization that the first tax on circulating 

quardt, Bomische Staatsverwaltung^ ii., p. 171, take the opposite view. 
Bureau de la Malle, in his £conomie Politique des Bomains^ does not touch 
this point. The decisive quotation is that from Tacitus, AnnaleSy 13, 51, of 
which Rodbertus' interpretation is strained. The best argument — which 
has not hitherto been advanced— seems to be this: that if the trihutum 
civile had continued, it would not have been necessary for Diocletian to 
introduce into Italy the trihutum provinciale. 

1 Rodbertus, iv., p. 364, puts it too strongly when he says that it was only 
a poll tax. See Marquardt, op. cit., ii., p. 195. 

2 Suetonius, Caligula, 40 : "Ex gerulorum diurnis quaestibus pars octava, 
ex capturis prostitutarum quantum quaeque uno concubitu mereret.'* Cf. 
Dio Cassius, lix., 28. 

« Known SiS foricarii. Suetonius, Vespasian, 16, 23. Cf. for other author- 
ities Walter, Bechtsgeschichte, i., p. 498. 




; I 







capital should be on a rather degrading occupation, and the 
first tax on industry one on prostitutes.^ Caracalla, we are 
told, conferred the privilege of Roman citizenship upon all 
the inhabitants of the empire in order to extend to them the 
now numerous direct taxes, especially the succession and 
manumission taxes.^ The provincial land tax continued; 
but it went through the same evolution as the civic direct 
tax and became a general property tax. 

The industrial development, however, had outrun fiscal 
theory. It became more and more difficult to reach person- 
alty. More and more barbarous methods were introduced ; ' 
until, as Lactantius tells us in stirring language, torture 
was applied to the recalcitrant owner.* Under Diocletian 
the provincial land tax (known henceforth as jugatio or 
capitatio terrena) was introduced into Italy. But at the 
time of the Theodosian code and the completion of the 
late fiscal system, we find, not the general property tax,* 
but a vast variety of taxes, indirect and direct. Chief 
among the latter were those on the profits of trades, pro- 
fessions and artisans,^ now consolidated into corporations 
through the petrifaction of industrial relations.^ But the 
attempt to tax personal property by means of a general 

1 Hildebrand's JahrbUcher, v,, p. 316. 

2 At least this is the uncharitable construction of the act by Dio Cassiua. 
» The municipal decurions, for example, were made personally liable for 

the taxes levied on their municipalities. Service as decurion became compul- 
sory and hereditary. Fugitive decurions were brought back, like fugitive 
serfs or military deserters. 

* De morte pers. 23 : Fora omnia gregibus familiarium referta ; unusquis- 
que cum liberis, cum servis aderat ; tormenta ac verbera personabant ; filii 
adversus parentes suspendebantur ; fidelissimi quique servi contra dominos 
yexabantur, uxores adversus maritos. Si omnia defecerunt, ipse contra se 
torquebantur, et quum dolor vicerat, adscribebantur quae non habebantur. 

6 The poll tax (capitatio plebeia or hximana) levied on the serfs (colotii) 
was practically a property tax because it was paid by the landowner. 

« Known as chrysargyrum, vectigal artium^ pensio aurariaj and aurum 
lustrale. Cf. Levasseur, Histoire des Classes Otivrieres en France, i., pp. 

^ Cf. Wm. Adams Brown, " State Control of Industry in the Fourth Cen- 
tury,'' Political Science Quarterly, ii., 1887, pp. 494-613. 



property tax was abandoned because the original mass of 
property had disintegrated. The primitive system was 
abolished, and was replaced by methods more or less analog- 
ous to those employed in modern Europe. 

During the middle ages the same development can be no- 
ticed. In the early period, after the disruption of the Roman 
empire, there were no taxes at all. The primitive Teutonic 
idea forced its way into the feudal system, and the con- 
tributions originally devoted to public purposes became the 
private possessions of feudal nobles and over-lords. The 
public tax became private property.^ 

In the early feudal system land was practically the only 
form of wealth, just as it was the basis of the political fabric. 
In England the feudal payments {%cutagez^ carucagea and 
tallages) were assessed on the land, just as the Saxon «Aip- 
geld and danegeld were land taxes. These were at first 
levied on the gross produce of the land, either actual or 
as computed by the mere quantity of the land. With the 
progress of cultivation net produce rather than gross produce 
was made the test. Rents became the only practicable 
test of the value of land. But from the twelfth century 
onward, the growth of industry and commerce in the towns 
led to such an increase of personalty or movables that it 
became necessary to devise some new method of reaching 
the ability of the citizens. The only way out of the diffi- 
culty in England, as on the whole continent, was a combina- 
tion of the taxes on lands and on movables through the 
general property tax. 

The mediaeval town was the birthplace of modern taxa- 
tion. Every inhabitant was compelled to bear his share of 
the local burdens, his proportion of the scot and the lot. 
The scot, or tax, was almost from the very outset the general 
property tax combined with the subordinate poll tax, exactly 

1 Cf. for details Clamageran, Histoire de Vlmpot en France, !., p. 116; 
and Vuitry, Etudes sur le Regime Financier de la France avant la Revolution, 
i., p. 420. 










as in the earliest days of the New England colonies. The 
town, as such, generally paid its share of the national bur- 
dens in a lump sum, the jirma hurgL But this lump sum 
was always distributed among the townsmen in proportion 
to the property of each.^ On the continent it was the same. 
In the German towns the taxes were at first levied only on 
land. But at the close of the twelfth century, the land tax 
had already been merged into the general property tax — or, 
as it was called, the tax on property in possessionibus, agris, 
domihus, censibus et rebus quibmcunque,^ In some towns it 
was called simply a tax of so much per posse or pro bonorum 
facultate? Most of the German towns by this time com- 
bined the general property tax with the poll tax,* and in the 
Swiss cantons the tax was even called the Hab-^ Cfut-, und 
KopfsteuerJ* The only distinction between England and the 
continent was that in England the property tax remained for 
centuries the sole local tax, while in France and Germany 
local excises or octrois were soon added. But for some time 
at least the general property tax was the measure of the 
individual's capacity. 

The general state taxes followed in the wake of the munic- 
ipal taxes. Already in 1166 a tax on movables was levied 
throughout almost all Europe in order to aid the crusaders.^ 

1 Numerous examples may be found in Madox, Firma Burgi, pp. 281 et 
seq. In one town, under Edward III., each man is " taxandus et assidendus 
juxta quantitatem bonorum et catallorum suorum ibidem.'* In another town 
the tax " debet assideri proportionaliter juxta quantitatem bonorum suorum." 
For London, where each freeman paid the general property tax as partem 
de bonis suis or partem catallorum, see the examples in Munimenta Gild- 
hallae Londoniensis, Liber Albus, i., p. 692 et seq. For full details as to 
the method of assessment tempore Edward II., see Liber Custumarum, pp. 
193 et seq. J 568 et seq. 

2 Zeumer, Die deutschen Stadtesteuern , . . im xii.und xiii. Jahrhundert, 
pp. 86-89. 

* Christian Meyer, Augsburger Stadtbuch, pp. 75, 313. 

* Schbnberg, FinamverhdUnisse der Stadt Basel im xiv, und xv. Jahrhun- 
dert, p. 134. 

« Blumer, Staats- und Bechtsgeschichte der schweizerischen Bemocratien, 
it, pp. 295 et seq. 

« Sinclair, History of the Public Bevenue, i., p. 88. 




But the first general property tax, into which all the older 
contributions from the land soon merged, was the Saladin 
tithe of 1188 on the occasion of the third crusade. In 
England from this time on, the grants of rents and movables 
(de redditibus et mobilibus, or, as they were sometimes called, 
de redditibus et catallis) became more and more common 
until they finally superseded the older methods of securing 
revenue. The fractional parts of the property granted 
varied from a fortieth to a fourth, but from 1290 it became 
customary to tax the nobility and the clergy only two-thirds 
as much as the commons. In 1334 the proportion was fixed 
as the fifteenth and the tenth. Since the land was owned 
chiefly by the nobles, this meant a higher nominal rate for 
movables. But in reality there was a substantial equality 
because the assessment of chattels was not strictly enforced. 
This is apparent from the dissatisfaction shown with the tax 
of 1275, when the people were assessed ad unguem, i.e, up 
to the full value of their movables. ^ In the succeeding 
grants the old easy practice was resumed. As the tax on 
lands, however, could be levied on actual rents, it was not 
apt to be so leniently assessed. Thus a substantial equality 
was probably reached. 

Just as in England the tallages merged into the fifteenths 
and tenths, so in France the feudal charges on the land 
developed into the general property tax, which however still 
retained the old name taille. The ordinances of 1254-56 
attempted to regulate the assessment, and provided that 
movables should be charged only half as much as immova- 
bles.2 France thus endeavored to attain by law what 
England effected by custom. During the fourteenth century 
the taille came to be the chief direct tax, and in 1439 it was 
made a permanent annual tax. In Germany, also, the imperial 
and state direct taxes, in so far as there were any, took the 
form of general property taxes. The Bede? the gemeiner 

1 Dowell, History of Taxation and Taxes in England (2d edition), i., p. 68. 
* Clamageran, Histoire de VImpot en France, i., p. 264. 
» At first a feudal land payment ; cf. Hiillmann, Deutsche Finamgeschichte 
des Mittelalters, p. 133. 









Pfennig,^ the Land%cho8S,^ the Xantf«few«r,3 efc., aU foUowed 
the example of the local property tax. 

In the Italian republics the commonwealth was at first 
supported by the general property tax. In Milan, under 
the name Btima e catastro de bent, it is found as early as 1208, 
and afterwards was levied with such severity that the assess- 
ment book was known as the libro del dolore,^ In Genoa it 
was caUed colletta,^ In Florence it was known as estimo and 
played an miportant role in politics.^ And finally we find 
m the Netherlands from the earliest times the general prop- 
erty tax known as the schot or the tenth, etc., on beziUungen 
(possessions). 7 

The general property tax thus existed throughout all 
Europe. It was moderately successful because well suited 
to the period. Although involving an inquisitorial search 
into every article of the scanty medieval stock, as can readily 
be seen from the detailed schedules of assessments still in 
existence, the tax was levied chiefly on tangible, physical 
objects not capable of easy concealment. With the exception 
of countries like France, where the tax was emasculated by 
the system of exemptions, it resulted on the whole, during 
this early period of society, in a tax fairly proportional to the 
individual faculty. There was a general property tax 
because there was a very slight differentiation of property. 

Before long a change set in. In England the fifteenths 
Kar^^lf^^mi^^^ J5:n^ti«c*eZunfir der teutschen Steuervetfassungen seit der 

2 schmoller, "Die Epochen der preussischen Finanzpolitik," in Jahrbuch 
fur Gesetzgehung, Verwaltung und Volksxjoirtschaft, i., pp 36 42 

» Hoffmann, Geschichte der direkten Steuem in Baiern torn Ends des xiii. 
Jahrhunderts, pp. 11, 17, 39. 

* Carli, Belazione del Censimento dello Stato di Milano, in Custodi's Scrit 
ton Ulasstct Italiani, parte moderna, xiv., pp. 184, 186. 

^ - Le imposte straordinarie si possono di questa e^ca [1262] compren- 

ons^r* ^* '''"'^'**" ^^''^'* '^^''"''' ^"^ ^''''^'^' '" ^' ^^^ ^'^^^"^ 

• ViUani tells ns that it was levied on " cio che chiascuno havea di stabile 
e di mobile e di guadagno." Istorie Florentine fino al anno 1348, book x., 
chap. 17 (vol. VI., p. 26, of Milan edition of 1803). 

' Engels, De Qeschiedenis der Belastingen in Nederland, pp. 60-65. 



and tenths were changed from percentage to apportioned 
taxes, and every locality had to raise a definite lump sum. 
But the old methods of assessment fell into disuse. Each 
town and county made its own arrangements and treated 
personal property with such leniency that the total product 
of the tenth and the fifteenth continually decreased. This 
resulted in attempts on the part of the crown to supplement 
the old tax by a new general property tax, called the sub- 
sidy. The early efforts met with failure, but finally, in 
1514, the first general subsidy was granted, as a tax of six- 
pence in every pound of property. The pound rate was 
afterwards fixed at four shillings on lands, and two shillings 
eight pence on goods. But the subsidy went through precisely 
the same development as the fifteenth and the tenth. At first 
really a percentage tax, it was soon practically converted into 
an apportioned tax of a stated lump sum. No re-assessment of 
the districts took place ; each locality was supposed to pay 
the same sum year after year. All increase in wealth was 
thus entirely omitted from the lists. Exemption after exemp- 
tion was made, and personal property was so loosely assessed 
that the total yield continually declined. The most arbitrary 
methods were employed. Only the old " subsidy-men " were 
taxed ; allowances were made in a multitude of cases ; and 
the assessments of personalty were so low and partial that 
the subsidy became a perfect farce. As Bacon said, "the 
Englishman is master of his own valuation." ^ Sir Robert 
Cecil stated in 1592 that there were not over five men in 
London assessed on their goods at £200 ; and Sir Walter 
Raleigh wrote in 1601 that " the poor man pays as much as 
the rich." 2 Although nominally a general property tax, the 
subsidy thus came to be levied chiefly on thie land, and 
became an unequal land tax — so unequal that it finally 
disappeared in 1663. 

Under the commonwealth an attempt was made to revive 
the general property tax, under the name of commonwealth 

^ And, he adds, " the least bitten in purse of any nation in Europe." 
=* Btport on Public Income and Expenditure^ 1869, ii., p. 416. 







monthly assessments.^ The improvement was so marked 
that the old subsidies were completely abandoned and 
replaced by the assessments. But the reform was short-lived 
and the assessments of personal property continually dimin- 
ished. Sir William Petty, after complaining of this, never- 
theless held, as do some of our rural legislators to-day, that 
*' assessments upon personal estates, if given in as elsewhere 
upon oath, would bring that branch which of itself is most 
dark to a sufficient clearness."^ After the Revolution the 
tax was levied as the so-called property tax. By its terms ^ 
it was assessed on the persons possessed of personal property, 
real estate, or public offices or positions of profit. And it 
was at first a percentage tax. But the yield decreased so 
enormously that Parliament in 1697 fixed the sum a rate 
should produce, i.e. it became an apportioned tax of stated 
amount. Moreover, the difficulty of assessing personalty and 
the impossibility of reaching intangible property were now so 
apparent that the tax became almost exclusively a land tax, 
and was first so called in 1697. The "annual land tax" 
of England (which since 1798 has become simply a redeem- 
able rent charge on land) was thus intended to be a 
general property tax and for a long time continued to be so 
legally.* The provision taxing personal property continued 
to exist on the statute book until 1833, and the clause taxing 
public offices and positions of profit was not finally repealed 
until 1867. The year before its repeal it had yielded the 
sum of £823 ! ^ Such was the ludicrous result of the 
attempt to maintain mediaeval customs. The general prop- 
erty tax, which had started out as a land tax, reverted in 
name as well as in fact to its earliest form. 

1 Tayler, The History of the Taxation of England^ p. 21. 

* Petty, Verhum Sapienti ; or . . . the Method of raising Taxes in the 
most equal manner^ p. 17. (Appended to his Political Anatomy of Ireland^ 
edition of 1691.) » 4 William III., chap. 1. 

* Adam Smith, Wealth of Nations, book v., chap. ii. : " By what is called 
the land tax, it was intended that stock should be taxed in the same propor- 
tion as land." (Thorold Rogers' edition, ii., p. 553.) 

* Report of the Commissioners of Inland Bevenue., 1867. 



In other countries the history of the property tax is 
identical. In France the taille was of two kinds: the taille 
rSelle^ which was levied only on lands in the pa^s d'Stat; and 
the taille personnelle^ nominally a general property tax 
levied in the pai/9 d'Slection, which constituted the greater 
portion of France. In reality the taille personnelle was 
assessed only on the families or households of the non- 
nobles (roturiers)^ and it became practically a land tax like 
the taille rSelle ; for the wealthy owners of personalty soon 
acquired the same privileges as the nobility. Vauban tells 
us that the taille as a tax on movables was assessed only 
on the poorest classes. ^ Sully, indeed, endeavoured in 1660 
to restore the principles of the general property tax and to 
assess personalty as well as realty.^ But he failed ignobly ; 
for, at the close of the seventeenth century, the great work 
of Boisguillebert is full of bitter complaint and lamentation.* 
And when the attempt was mad» in the eighteenth century 
to supplement the taille by the dixiemeB and vingtiimes^ like 
the tenths or fifteenths of old in England, the new tax again 
soon became virtually a land tax.* The development was 
inevitable, and it resulted during the Revolution in the total 
abolition of the general property taxes. 

In Germany, the mediaeval assessment lists to be filled 
out by the taxpayer bear a striking resemblance to those 

1 "En r6sum6 la taille €tait un impot territorial qui n'atteignait que lea 
propri^taires les plus pauvres du royaume, et une taxe mobilifere qui portait 
exclusivement sur les classes les moins riches de la soci6t6." Dime Boyale^ 
p. 32 of Daire's edition. 

■^ Sully ordered the officials to assess contributors " h. raison de leurs fac- 
ult^s, quelque part qu'elles soient, meubles ou immeubles, heritages nobles 
ou roturiers, trafic et Industrie." Cf. Clamageran, Histoire de V Impot, ii, 
p. 359. 

8 '* II n'y a pas le tiers de la France qui y contribue, n'y ayant que les plus 
faibles, et les plus misSrables ; en sorte qu'elles les ruinent absolument.'* Le 
Detail de la France^ chap. iii. 

* " Dans la pratique, P filament fonder pr^ominait presque exclusive- 
ment." Stourm, Les Finances de Vancien Begime et de la Bevolution^ i., p. 
240. See also Necker, De V Administration des Finances de la France^ i., 
p. 159. It must be noted, however, that these taxes were calculated on the 
basis of income, rather than of selling value. 






f ' 





still used in some of the American commonwealths.^ But 
there, as here, it became continually more difficult to reach 
personal property. In Prussia (Brandenburg) this was 
true already at an early period.^ In Bavaria as well as in 
Austria the nobility and the richer commercial class suc- 
ceeded at the end of the sixteenth century in shoving the 
main burdens on the shoulders of the rural population.^ 
And in the other German states the equal property tax 
remained so only in name.* In Switzerland, indeed, the 
property tax, like so many other mediaeval customs, has 
been in part retained to this day. But its nature has 
been materially changed, in that it has become a progressive 
tax and that an attempt has been made to remedy its defects 
by joining to it an income tax. Even thus, much hardship 
and inequality ensue.* 

In Italy the development of the property tax can be 
clearly studied in Florentine history. The eitimo, at first 
assessed with comparative equality, soon became honey- 
combed with abuses. Personalty slipped out of the lists, 
the rich bankers entirely escaped, and the whole load of 
taxation fell with crushing force on the small owners, 
populo minuto. Hundreds were completely ruined and com- 
pelled to seek refuge in exile.^ The discontent became so 
loud that after threats of revolution and disorder the 
e%timo was finally supplanted in 1427 by the new tax, 
catasto, to be levied on the personalty of traders and 

1 For a typical list of 1631, see Bielfeld, Geschichie des magdeburgischen 
SUuerwesens von der Beformationszeit, pp. 19-23. 

2 Schmoller, "Die Epochen der preussischen Finanzpolitik," in his Jahr- 
buch, i., pp. 42, 49. Cf. his '' Studien iiber die wirthschaftliche Politik Fried- 
richs des Grossen," in the Jahrbuch, viii., p. 38, for Brandenburg ; viii., p. 
1011, X., p. 330, and x., p. 350, for Magdeburg. 

« Hoffmann, Geschichte der directen Steuern in Baiern, p. 70. 

* Wagner, Finamwissenschaft, iii. (Ist edition), pp. 62, 77, 80. 

* Cf. the article by Cohn in PolUical Science Quarterly, iv., p. 60. 

« Cf. L6on Say, Les Solutions Democratiques de la Question des Impots, i., 
pp. 209 et seq., especially pp. 222, 229. He gives no references. For a full 
history, see Baer, "iZ Catasto Fiorentino nel secolo xv.", Nuova Antologia, 
▼ol. 17 (1871) and the book of Canestrini quoted in the next note but one. 

\ : 



bankers as well as on realty. Machiavelli gives us an 
interesting account of the opposition of the nobles, who 
were at the same time the great financiers.^ But the new 
general property tax went the way of its predecessors. 
When we read of the subterfuges and evasions, of the 
strenuous efforts on the part of the state to compel 
the listing of personalty and of the dismal failure of 
the attempts, we seem to be reading the reports of 
American commonwealth assessors or comptrollers for 1895. 
Their experience was precisely the same as ours. In 1431 
only fifty-two persons paid the tax on trade capital, although 
the amount of such capital must have been immense. And 
in 1495 the tax was made in name, what it had long been 
in f act,2 — a tax on immovables only. Personalty, as such, 
was henceforth legally exempt. The general property tax 
had agam become a land tax. 

Throughout all Europe the local property tax has become 
a tax on real estate. In England the whole system of local 
taxation is based on the poor rate, according to the statute 
of 1601 which mentioned as liable to the tax not only 
occupiers of lands, houses, etc,^ but every inhabitant, par- 
son and vicar. The tax was a general property tax levied 
according to the ability of the individual, ad %tatum et 
facultatea, as the courts put it. At first land was assessed, 
as everywhere else at the beginning, simply according to 
the number of acres ; but by the time of William III., 
rental value was substituted for mere quantity as the test 
of ability. Since personal property also was taxable, this 
was, however, simply a general property tax. Yet from 
an early period the rule was adopted that all personal 
property liable must be local, visible and productive of a 
profit.^ Thus intangible personalty, tangible personalty 

1 History of Florence, iv. , p. 14 (vol. i., p. 181 of Detmold's translation). 

2 Canestrini, La Scienza e VArte di Stato. VImposta sulla Bichezza 
Mobile ed Immobile (1867), i., pp. 108, 115, 321, etc. 

* In 1633 it was decided that " the assessments are to be according to the 
visible estates, real and personal, of the inhabitants." Sir Anthony Earby'a 
Case, 2 Bulstrode, 354. 









kept in the owner's hands, earnings from personal abilities, 
and profits from moneys invested or lent at interest in 
another parish were exempt as being either unproductive, 
invisible, or not possessing a local %itu%,^ The only prop- 
erty not excluded by these conditions was stock in trade, 
but it was not until the industrial revolution toward the 
close of the eighteenth century that the matter became of 
importance. Lord Mansfield in 1775 showed the impolicy 
of such action; 2 but although the liability of stock in trade 
was hotly disputed, it was affirmed by Lord Kenyon in 
1795.3 The results were doubly disastrous in the places 
where it was tried : the early success of the experiment led 
the justices of the peace to begin that improvident method 
of poor relief known as the allowance system;* and the prac- 
tice of rating stock in trade, which was confined to the old 
clothing district in the south and west of England, resulted 
in the rapid decline of the ancient staple industry and a 
transfer of the business to Yorkshire, where personalty 
was not assessed.6 When the principle was tested in 
another district in 1839, the courts again upheld the prac- 
tice.6 As a consequence, a law was passed which exempted 
personalty from taxation,^ but it was powerless to bring 
the trade back to its old channels. The exempting law 

» Iteport of the Poor Law Commissioners on Local Taxation, 1843, 8vo 
edition (1844), pp. 43 et seq., and especially pp. 34-38. This contains the 
best history of local taxation in Great Britain. 

* Rex vs. Ringwood, 1 Cowp. 326. 

» Rex vs. Mast, 1 Bott. 204. For a detailed statement of the case see 
Appendix A to the Beport of the Poor Law Commissioners on Local Taxa- 
tion, 1843, nos. 35-94. The existence of the general property tax can still be 
seen in 1791. Cf Rex vs. White, 4 T. R. 771. 

« By the Speenhamland Act of 1795. See First Annual JReport of the 
Poor Law Commissioners, 1836, p. 207. 

s Heport of the Poor Law Commissioners on Local Taxation, 1843. 8vo 
edition, p. 38. 

6 Queen vs. Lumsdaine, 10 Adol. and Ellis, 157. 

7 3 and 4 Vict., chap. 89, provided that it should not be lawful "to tax 
any inhabitant in respect of his ability derived from profits of stock in trade 
or any other property," except " lands, houses, tithes impropriate, propria- 
tions of tithes, coal mines, or saleable underwoods." 



was enacted for only a year, but it has been annually 
renewed ever since. ^ Thus for the last half century 
the local property tax in England has been legally 
as well as actually a tax on productive real estate 
alone. ^ 

History thus everywhere teaches the same lesson. As 
soon as the idea of direct taxation has forced itself into 
recognition, it assumes the practical shape of the land tax. 
This soon develops into the general property tax which long 
remains the index of ability to pay. But as soon as the 
mass of property splits up, the property tax becomes an 
anachronism. The various kinds of personalty escape, until 
finally the general property tax completes the cycle of its 
development and reverts to its original form of the real 
property tax. The property tax in the United States is 
simply one instance of this universal tendency; it is not 
an American invention, but a relic of mediaevalism. In 
substance, although not in name, it has gone through every 
phase of the development, and any attempt to escape the 
shocking evils of the present by making it a general prop- 
erty tax in fact as well as in name is foredoomed to failure. 
The general property tax is impossible in any complicated 
social organism. Mediaeval methods cannot succeed amid 
modern facts. 


1 By the Expiring Laws Continuance Act. 

* Thorold Rogers, Local Taxation, especially in English Cities and Towns, 
p. 16. Cf also Noble, Local Taxation, p. 58 ; Palgrave, Local Taxation in 
Great Britain, p. 78 ; Goschen, Beports and Speeches on Local Taxation, p. 
50 ; Phillips, "Local Taxation in England and Wales," in Probyn's Local Gov- 
ernment and Taxation in the United Kingdom, p. 502 ; Bilinski, Die Gemein- 
debesteuerung und deren Beform, pp. 35 et seq. See also Hedley, Observations 
on the Incidence of Local Taxation (1884), who opposes the exemption of 
stock in trade and the recent attempts to get machinery exempted from rat- 
ability. Cf G. H. Blunden, Local Taxation and Finance, 1895. Some inter- 
esting material may also be found in J. J. O'Meara, Municipal Taxation at 
Home and Abroad, 1894. The best works on the legal aspect of the question 
are Castle, A Practical Treatise on the Law of Bating (2d edition, 1886), 
and Boyle and Davies, The Principles of Bating practically considered, 


I ' 



III. Theory of the PropeHy Tax. 

While it is generally confessed that the property tax, as 
administered in the United States, is a failure, it is some- 
times contended that if thoroughly executed it would be a 
just tax.i The theory of the general property tax, as set 
forth in almost all our state constitutions, is held to be cor- 
rect in principle. Is this true ? 

In the first place we must disabuse ourselves of the idea 
that property, as such, owes any duty to pay taxes. The 
state has direct relations not with property, but with per- 
sons. It is the individual who, from the very fact of his 
existence within the state, is under definite obligations 
toward the state, of which the very first is to protect and sup- 
port it. The state, indeed, can exist without the particular 
individual, but the individual cannot exist without the state. 
Every civilized community professes to tax the individual 
according to his abiHty to pay, which may, indeed, be meas- 
ured by his property or by any other standard. In the last 
instance, however, it is the individual who really owes this 

But is property the true test of ability? In primitive 
communities it is to a certain extent. Every freeman is a 
proprietor, and all are supported by the produce of the land. 
Comparative equality of wealth gives comparative equality 
of opportunity, and the finer differences in ability to pay 
are not yet recognized. In the early stages of society 
property is indeed a rough test of ability. 

But a change soon sets in. As society differentiates, 
classes arise who support themselves not from their prop- 
erty, but from their earnings. Manifestly he who earns a 
salary cannot be declared entirely devoid of ability to pay, as 
compared with one who receives the same amount as interest 

1 " WhUe there is no fairer or better mode of taxation than the ad valorem 
system properly and justly administered, there is none more oppressive or 
unjust and unequal when loosely or imperfectly executed." Beport of the 
Comptroller-General of Georgia, 1894, p. 5. 




on a principal, or as profits on property. Moreover, the pro- 
ductiveness of property becomes a controlling element in 
calculating the owner's ability. Of two factory owners, one 
may be running full time and making large profits; the 
other may be compelled to keep his factory closed, earning 
nothing. Of two landowners, one may employ improved 
processes and enjoy a large product; the other, although 
on equally valuable land, may suffer climatic reverses and 
produce far less. Of two capitalists, one may invest Ms 
property so as to obtain large proceeds; the other may put 
an equal amount into an enterprise which yields very little. 
It is plainly incorrect to say that the ability in these cases 
varies with the property. The test of ability is shifted 
from property to product, proceeds or earnings. 

The truth of this principle is faintly recognized in the 
legislation of all countries one step removed from the 
primitive tax system. Its application can be seen in some 
of the mediaeval town taxes, where the earnings of the 
artisans and tradesmen were taxable, as evidences of ability 
or faculty, side by side with the property of others. It can 
be seen also in various attempts of mediaeval states to tax the 
proceeds or rents of land, the salaries of officials and the 
products of individual exertion. In like manner, it can be 
seen in the early legislation of the American colonies. 
Thus the tax law of 1634 in Massachusetts Bay provided for 
the assessment of each man "according to his estate and 
with consideration of all other his abilityes whatsoever." 
The measure of ability, however, was still property, as 
appears from the provision of 1635 that "aU men shall 
be rated for their whole abilitie, wheresoever it liea,^* By 
1646, the glimmering of the new idea is seen; for the law 
now provides not only for rating of all "estates, both real 
and personal," but also for the taxation of "manual persons 
and artists," who "are to be rated for returns and gains 
proportionable unto other men for the produce of their 
estates." In other words, not only property but product was 
taken into account. In many of the other American colonies, 








•also, the profits of certain classes were taxable like the produce 
of estates, by what was known as the faculty tax or the 
assessment on the faculty.^ We see, therefore, how wide 
of the mark is the recent statement that the system which 
the Americans instinctively adopted was " the equal taxation 
of property, the non-taxation of labor." 

In the colonies, indeed, these laws mark only the first 
faint attempts to substitute product for property as the 
basis of taxation. Later on, the distinction was lost sight 
of and the attempt abandoned. But in Europe the develop- 
ment continued and the basis of the tax system was changed 
from property to product. Thus taxes on land, houses, 
wages, salaries, interest, profits, etc.^ gradually supplanted 
the property tax, and formed a more or less complete system 
based on product. In modern societies, as we have seen, 
the basis of taxation has very recently again shifted from 
product to income. The point here to be noticed is that 
throughout all Europe the mediaeval basis of taxation — the 
mass of property — was abandoned because it no longer 
corresponded to the demands of justice. The property tax 
is theoretically unjust because property no longer measures 
the ability to pay — because property has been replaced by 
product as an index to faculty. 

This is the reason for the failure of the property tax. It 
has, indeed, been contended by some, as, for instance, by 
President Walker, that the fatal defect of the property tax 
consists in its constituting a penalty on savings. ^ This 
criticism seems to be questionable, for the same objection 
would attach to any tax based on income just so far as 
income exceeds expenditures. An income tax on the surplus 
is equally a tax on savings. There is no difference in this 
respect between a property tax and this portion of an income 
tax. The only logical conclusion from this objection to the 

1 For the details of this development see my article on *' The Income Tax 
in the American Colonies and States/' in FolUical Science Quarterly, June, 
1895 (vol. X., pp. 221-247). 

* FolUical Science Quarterly ^ ilL, p. 3. 




property tax is a tax on expense. If we wish to avoid taxing 
savings, we must tax only expenditure. And yet President 
Walker correctly opposes the expense tax as the most unjust 
of all. The property tax is unjust, not because it is a penalty 
on savings, but because property is no longer a measure of 

There is not a single scientist of note who upholds the 
property tax as the sole or chief direct contribution. Some of 
the German writers on finance do, indeed, advocate a general 
property tax, but simply as a subordinate supplement to all 
existing direct taxes,^ and mainly as an adjunct to the income 
tax, in order to tax income from property more than profes- 
sional or individual earnings. These writers, however, over- 
look the fact that the same result may be attained by 
making a difference in the rate of the income tax, as in Italy. 
Above all, the continental countries have been so long exempt 
from the general property tax that the European writers 
have given it very little attention, have forgotten its short- 
comings and have failed to analyze its inherent defects. 

One other argument of somewhat more weight is some- 
times advanced in favor of the property tax, vi2., that under 
any other system unproductive property, like jewelry, art 
collections, unimproved lands, etc.^ would be exempt. This 
consideration at its best does not justify a general property 
tax, but a tax on special kinds of property. Entirely apart 
from the impolicy of taxing art collections, or the impossi- 
bility of discovering jewelry, or the utter insignificance of 
this kind of property when compared with the total national 
wealth, the argument is defective. The conversion of capi- 
tal into unproductive wealth of itself destroys the reve- 
nue, which is the only true fund for the payment of taxes. 
It is undeniable that if the property were productive, and if 
the tax were levied on the product, the owner would pay a 

1 Cf. Gustav Cohn, FinamiHssenschaft, § 476: "Neben der Erwerbsbe- 
steuerung bleibt fur die Besitzbesteuenmg heute nur ein beschr&nkter Raum 
iibrig." See the English translation, p. 666: "The taxation of earnings as 
it exists to-day leaves but scant room for taxes on possessions.'* 





larger sum. But on the other hand, his revenue would be 
still greater and his annual surplus above the tax would con- 
stitute an ever-increasing productive fund. To leave un- 
productive property free may thus indeed lessen the share of 
the government, but seems to be nothing more than justice 
to the individual. His renunciation of revenue diminishes 
fro tanto his tax-paying ability. It is really only because of 
the belief that the possession of these articles of consumption 
involves an expenditure for their maintenance, or forms an 
indirect proof that their owner is able not only to retain these 
articles of luxury, but also to live in comfort on his income, 
that we attempt to tax this kind of property. In other 
words, just as relative expenditures of certain kinds afford 
a rough criterion of a man's income, because his standard of 
living usually bears a fairly definite relation to his income, 
so the taxation of special articles of property may really be 
considered an indirect way of getting at relative revenue. 
But precisely because it is very rough and indirect, it is in 
the main unsatisfactory. 

The great element of reason in the demand for the taxation 
of unproductive property is to be found in the assessment of 
real estate. It is an undoubted fact that real estate is often 
held for speculative purposes, and that it is the duty of the 
community not to encourage such speculation by exempting 
vacant lands from taxation. The owner expects to reap 
from the future value of the land, whether he sells or keeps 
it, a sum more than sufficient to recompense him for his 
outlay and intervening loss of interest and profit. He is 
prospectively earning an annual revenue from the land, 
whose present unproductiveness is technical rather than real. 
It is thus perfectly logical to tax unproductive real estate 
even though the basis of taxation be product rather than 
property. It is the estimated, rather than the actual, product 
that is taxed. 

But even granting that there is this justification for a tax 
on certain forms of unproductive property, it would not 
strengthen the case for a general property tax. At best it 





would simply mean that the tax on product should be supple- 
mented by a tax on certain kinds of unproductive property, 
which are really prospectively productive. No one has ever 
objected to a real estate tax, whether it be levied on the basis 
of value or of assumed product. But a real estate tax is not 
a general property tax ; the principle of the real estate tax 
does not signify that property in general should be made the 
test of ability to pay. We may, therefore, still assert that 
if there are any evils arising from the absence of a general 
property tax, they are slight when compared to the evils 
inseparable from its existence. 

IV. Conclusion, 

From the preceding survey it is difficult to escape the 
conclusion that the general property tax as the main source 
of public revenue is a failure from the triple standpoint of 
history, theory and practice. 

Hutorically^ the property tax was once well-nigh uni- 
versal. Far from being an original idea which the Ameri- 
cans instinctively adopted, it is found in all early societies 
whose economic conditions were similar to those of the 
American colonies. It was the first crude attempt to attain 
a semblance of equity, and it at first responded roughly to 
the demands of democratic justice. In a community mainly 
agricultural, the property tax was not unsuited to the social 
conditions. But as soon as commercial and industrial con- 
siderations came to the foreground in national or municipal 
life, the property tax decayed, became a shadow of its former 
self, and while professing to be a tax on all property, ulti- 
mately turned into a tax on real property. The disparity 
between facts and appearances, between practice and theory, 
almost everywhere became so evident and engendered such 
misery, that the property tax was gradually relegated to a sub- 
ordinate position in the fiscal system, and was at last com- 
pletely abolished. All attempts to stem the current and to 
prolong the tax by a more stringent administration had no 



, I 




effect but that of injurious reaction on the morale of the com- 
munity. America is to-day the only great nation deaf to 
the warnings of history. But it is fast nearing the stage 
where it, too, will have to submit to the inevitable. 

Theoretically^ we have found that the general property tax 
is deficient in two respects. First, the theory presupposes 
that there is an ascertainable general property — a definite 
surplus of assets over liabilities. In primitive social condi- 
tions this is true ; there is a composite mass of property, 
because there is no industrial differentiation. But in the 
modern age property is split up into a hundred elements, so 
that if we attempt to tax each element separately, it is often 
impossible to decide from which category deductions are to 
be made for indebtedness. An individual, for instance, 
owes more on his book accounts than is due to him. 
Granting that he therefore pays no tax on his book accounts, 
shall he be permitted to deduct this surplus of debt from 
the value of his real estate ? This is manifestly inadmissible. 
And yet unless this is done he is taxed not on his property, 
but on his surplus of debt — not on his real assets, but on 
what he owes ; not on his ability, but on his liability. The 
theory of the property tax is not carried out ; and it cannot 
be carried out because the conditions of the theory fail. 
The general mass of property has disappeared, and with it 
vanishes the foundation of the general property tax. 

Secondly, the property tax is faulty, because property is 
no longer a criterion of faculty or tax-paying capacity. Two 
equal masses of property may be unequally productive, and 
hence unequally affect the margin of income from which 
the public contributions are paid. The standard of ability 
has been shifted from property to product ; the test now is 
not the extent, but the productivity, of wealth. And since 
revenue is a better index than wealth, the vast class of 
earnings derived not from property but from exertion is 
completely and unjustifiably exempted by the taxation of 
property alone. The theory of the property tax again fails 
because the conditions of the theory have disappeared. 



Practically^ the general property tax as actually admin- 
istered is beyond all doubt one of the worst taxes known in 
the civilized world. Because of its attempt to tax intangible 
as well as tangible things, it sins against the cardinal rules 
of uniformity, of equality and of universality of taxation. 
It puts a premium on dishonesty and debauches the public 
conscience ; it reduces deception to a system, and makes 
a science of knavery ; it presses hardest on those least 
able to pay ; it imposes double taxation on one man and 
grants entire immunity to the next. In short, the general 
property tax is so flagrantly inequitable, that its retention 
can be explained only through ignorance or inertia. It is 
the cause of such crying injustice that its alteration or its 
abolition must become the battle cry of every statesman 
and reformer. 1 

^ I do not wish to be understood as fayoring either the exclusive taxation 
of real estate or the single tax on land-values. Even as the sole direct taxes, 
these forms are inadequate, as will be shown in the succeeding chapters. 





) > 






n , 

62 ^ly^^KS" /A^ TAXATION 



1. Ames, John H. The Taxation of Personal Property. Des Moines, 


2. Ames, John H. The Taxation of Real Property and Corporations. 

Des Moines, 1878. 

3. Andrews, George H. Taxation. Address . . . before the Assem- 

bly Committee of Ways and Means of the State of New York. 
New York, 1874. 

4. Andrews, George H. Unequal State Taxation. New York, 1875. 

5. Andrews, George H. Taxes and Assessments in New York City. 

New York, 1876. 

6. Andrews, George H. Twelve Letters on the Future of New York. 

New York, 1877. 

7. Brown, Frederick J. Short Talks on Taxes with special reference 

to the Hayes Bill of 1892. Baltimore, 1894. 

8. Cochran, Thomas. Local Taxation. Philadelphia, 1871. 

9. Cochran, Thomas. Methods of Valuation of Real Estate for Taxsi- 

ation. 1874. 

10. Crocker, George G. An Exposition of the Double Taxation of 

Personal Property in Massachusetts. Boston, 1885. 

11. Crocker, George G. The Injustice and Inexpediency of Double 

Taxation. Boston, 1892. 

12. Dana, Richard H. Double Taxation, unjust and inexpedient. 

Boston, 1892. 

13. Douglas, Charles H. J. Financial History of Massachusetts. 

Columbia College Studies in History, Economics and Public Law. 
Vol. i., no. 4. New York, 1892. 

14. Ely, Richard T., and Finley, J. H. Taxation in American States 

and Cities. New York, 1888. 

15. Endicott, William, Jr. The Taxation of Tangible Things. Bos- 

ton, 1875. 

16. Ensley, Enoch. The Tax Question; What should be taxed and 

how it should be taxed. Suggestions for the People of Tennessee 
to consider. Nashville, 1873. 

17. Hamilton, John. The Tax Problem. An Address delivered at the 

Annual Meeting of the Pennsylvania State Board of Agriculture. 
Harrisburg, 1891. 

18. Hinckley, Isaac. Unequal Taxation in Delaware. Philadelphia, 


1 For the official reports, see infra, chap. xiil. For a bibliography of the 
corporation tax, see infra, chap. viii. 



19. Hills, Thomas. Address on Taxation. Boston, 1890. 

20. Lane, Jonathan A. Address on Taxation at a Meeting of the 

Boston Executive Business Association. Boston, 1891. 

21. Minot, William, Jr. Local Taxation and Public Extravagance. 

Boston, 1877. 

22. MiNOT, William, Jr. Taxation in Massachusetts. 2d edition. 

Boston, 1877. 

23. Peabody, a. p. Address on Taxation. Boston, 1833. 

24. Perry, A. L. Extrarterritorial Taxation. Boston, 1875. 

25. Quincy, Josiah P. Double Taxation in Massachusetts. Boston, 


26. Ripley, William Z. Financial History of Virginia. Columbia 

College Studies in History, Economics and Public Law. Vol. iv., 
no. 1. New York, 1893. 

27. Ropes, John C. Taxation of Mortgaged Real Estate. Boston, 1881. 

28. Schwab, John C. History of the New York Property Tax. Amer- 

ican Economic Association. 1890. 

29. Shearman, Thomas G. Taxation of Personal Property, imprac- 

ticable, unequal and unjust. New York, 1895. 

30. Sherman, Isaac. Exclusive Taxation of Real Estate and the Fran- 

chises of a few specified moneyed Corporations and Gas Compa- 
nies. New York, 1875. 

31. Walker, Francis. Double Taxation. Columbia College Studies 

in History, Economics and Public Law. Vol. v., no. 1. New 
York, 1895. 

32. Wells, David A. Theory and Practice of Local Taxation in the 

United States. Boston, 1874. 

33. Wells, David A. The Reform of Local Taxation. Boston, 1876. 

34. Whitmore, William H. Unjust Taxes. A Criticism of the Massa- 

chusetts System of Local Taxation. Boston, 1877. 

35. Willis, Benjamin A. Remarks on the BiU providing for the 

Exemption of Mortgages on Real Estate from Taxation. New 
York, 1873. 

36. Wood, Frederick A. History of Taxation in Vermont. Colum- 

bia College Studies in History, Economics and Public Law. Vol. 
iv., no. 3. New York, 1894. 

37. Worthington, T. K. Historical Sketch of the Finances of Penn- 

sylvania. American Economic Association. 1887. 

38. Municipal Taxation. Argument submitted to the Revisory Com- 

mission [by R. W. Knott and A. W. Humphrey]. Louisville, 1892. 










Among the schemes for social and tax reform, few have 
been more earnestly and enthusiastically supported than the 
single tax. Many persons, however, have only a faint idea 
of what the scheme really is ; while others have been so in- 
fluenced by the specious arguments of its advocates, that they 
have not troubled themselves to investigate the problem from 
the standpoint of exact economic knowledge. Let us attempt, 
in the following pages, to explain the nature of the single tax 
and to state the objections that may be urged against it. 

I. What is the Single Tax? 

In the first place, the single tax denotes, as its name 

implies, the only tax, the exclusive tax, the tax on some one 

class of things. The idea that the wants of the state may 

be supplied by such a tax is not a new one. During the 

seventeenth and eighteenth centuries, a band of reformers in 

England as well as on the continent put forward the idea of 

a single tax on expense. ^ So many of the privileged classes 

had succeeded in securing exemption from the various direct 

taxes, that it was hoped to realize a substantial universality 

of taxation by taxing everybody on his expenditure ; and 

since it was supposed that this tax could be evaded by no one, 

it was for a time very popular. Later on in the eighteenth 

century, there was a party in England, whose motto was a 

single tax on houses. Again, at the beginning of this cen- 

tury, the experience of England with the income tax led a 

* Supra, p. 10. 



number of writers on the continent to advance the plan of a 
single tax on incomes. Finally, during the past few years, 
in France the project of a single tax on capital has been 
enthusiastically advocated not by socialists, but by some 
conservative reformers. The single tax of Henry George is 
thus simply the last of many similar schemes that have been 
propounded ; and it is not improbable that after it has dis- 
appeared economists of the future will be occupied in dealing 
with yet another form of single tax. 

The present scheme is a single tax on land values — that 
is, a tax on the value of the bare land irrespective of the 
buildings or other improvements in or on the land. Curi- 
ously enough the taxation of land has been supported by two 
lines of argument which are fundamentally opposed. Thus 
over twenty years ago Mr. Isaac Sherman, an eminent citizen 
of the city of New York, proposed a plan by which all state 
and local taxes at least were to be levied on real estate. 
Mr. Sherman and his followers confessed that taxes ought 
to be borne by the whole community. They favored the 
taxation of land on the theory that the tax would be shifted 
from the landowner to the consumer, and would thus be 
diffused throughout the community. As every one is a con- 
sumer, each would in the end bear his share of the burden. 
The tax would, moreover, have the additional merits of sim- 
plicity and convenience. 

Many people to-day declare their adhesion to a tax on land 
for this reason. But it is remarkable that what constitutes 
the chief advantage of the tax in the eyes of this party is 
regarded in precisely the opposite way by the real advocates 
of the single tax on land values. Mr. Sherman said that the 
tax on real estate is to be recommended because it falls only 
nominally on the owner, and is in fact shifted to the con- 
sumer. Mr. George says that the tax on land values will 
stay where it is put, namely, on the landowner, and that it 
is to be recommended precisely because it will not be shifted 
to the consumer. The difference between the two theories 
could not be more fundamental. 




As between these two theories, there is a substantial con- 
sensus of opinion among economists that Mr. George is 
correct. From the time of Ricardo, it has been well-nigh 
universally confessed that a tax on land values, i.e. a tax 
on economic rent, will fall wholly on the owner. ^ This is 
precisely the reason why the scheme is advocated by the 
single-taxers, who desire to tax the landowner out of exist- 
ence — to take away from the owner of the land all his 
revenue rights in the land. The essential antagonism be- 
tween the two schemes, therefore, cannot be emphasized too 
strongly. The one desires a land tax because it will be borne 
by the whole community; the other desires a tax on land 
values because it will be borne not by the whole community, 
but by a particular class. Yet many persons who really 
favor the former theory mistakenly give their adhesion to 
the latter. There are many so-called single-taxers who 
simply believe that a land tax is the most convenient of all 
methods for securing the desired equality of burden. In 
reality, there is no kinship between them and the single- 
taxers proper. Mr. George warns us not to confuse a tax 
on land with a tax on land value. 

II. The General Theory. 

The general economic theory on which the demand for the 
single tax is based may be summed up in a few words. 
Land is the creation of God ; it is not the result of any 
man's labor ; no one, therefore, has a right to own land. 
Increase in the value of land is due mainly to the growth of 
the community ; like the land itself, it is not the result of 
any individual effort; it is an unearned increment which 
properly belongs to society. Moreover, private property in 
land is undoubtedly the cause of all social evils. It therefore 
becomes the duty of the government to take what rightfully 
belongs to the whole community. Every one may still retain 
the result of his own labor ; but the value of the bare land, 
1 See the author»8 Tht Shifting and Incidence of Taxation (2d ed.), p. 223. 



the economic rent, must be taken for the state. In this way, 
and in this way alone, can the social problem be solved. The 
consequences are epitomized as follows in the platform of 
the Single Tax League : " It would solve the labor problem, 
do away with involuntary poverty, raise wages in all 
occupations to the full earnings of labor, make over-pro- 
duction impossible until all human wants are satisfied, 
render labor-saving inventions a blessing to all, and cause 
such an enormous production and such an equitable dis- 
tribution of wealth as would give to all comfort, leisure, 
and participation in the advantages of an advancing civili- 

This is an inviting prospect. It is not so much a method 
of tax reform, as a panacea for human ills, that is here set 
forth. It would be interesting to discuss this fine fabric of 
the ideal. But we must be more modest and confine our 
attention to the scheme primarily as a practical method of 
tax reform. 

In order to attain a basis for this discussion, it is neces- 
sary to allude to the two fundamental doctrines on which 
the plan is founded. The first is the underlying theory 
of private property ; the second is the theory of the relation 
of the individual to the public purse. 

In the first place, the single-tax theory of property is the 
labor theory — the theory that individual human labor con- 
stitutes the only clear title to property. It would be inter- 
esting, were there space, to trace the genesis of this doctrine. 
The Romans, as is well known, had an entirely different 
theory — the occupation theory, based on the right of the 
first occupant. Against this rather brutal doctrine, which 
in the early middle ages paved the way for intolerable 
abuses, the philosophers advanced the labor theory, hoping 
thereby to bring about a reform in actual institutions. 
The labor theory went hand in hand with the doctrine 
of natural rights, which was the result of an earnest 
attempt to abolish the abuses of the ancien rSgime^ and 
which came to a climax in the eighteenth century. 






Modern jurisprudence and modern political philosophy, how- 
ever, have incontestably proved the mistake underlying this 
assumption of natural law or natural rights. They have 
shown that natural law is simply the idea of particular 
thinkers of a particular age of what ought to be law. 
These particular thinkers, indeed, often influence the social 
consciousness, as they in turn are influenced by it, so that 
natural law may be called law in the making. But at any 
given time it represents simply an ideal. Whether that 
ideal will approve itself to society depends on a variety of 
circumstances, but chiefly on the question whether society 
is prepared for the change. Just as the modern method of 
jurisprudence is the historical method, so also the modern 
theory of property may be called the social utility theory. ^ 

The social utility theory says that just as all law, all 
order and all justice are the direct outgrowths of social 
causes, and just as private ethics is nothing but the con- 
sequence of social ethics, so private property is to be jus- 
tified simply by the fact that it is the last stage of a slow 
and painful social evolution. At the outset, property, and 
especially property in land, was largely owned in common. 
It was only through the gradual progress of economic and 
social forces that private property came to be recognized as 
tending on the whole to further the welfare of the entire 
community. The social utility theory does not, of course, 
mean that what has once been must always be. It is not 
a reactionary doctrine which looks upon all that is as good. 
It simply maintains that the burden of proof is always upon 
the party urging the change; and that when the change 
advocated is a direct reversal of the progress of centuries, 
and a reversion to primitive conditions away from which 
all history has travelled, the necessity for its absolute 
proof becomes far stronger. The nationalization of land 

^ For the best exposition of the insufficiency of the doctrine of natural 
rights, a discussion of which would be out of place here, the reader is referred 
to Ritchie, Natural Bights, 1895 ; and, with special reference to the land 
question, to Huxley's essay on "Natural Rights, 'Mn his Collected Essays. 



is a demand which, in order to win general acceptance, must 
be based on theories independent of the doctrine of natural 

Even though we accept the theory of natural rights, we 
need not therefore accept the single tax. If it be said that 
the value of land is wholly the work of the community, and 
that therefore every one has a natural right to it, how can 
we logically deny that the value of any so-called product is, 
at least partly, the work of the community? Mr. George 
bases his defence of private property in commodities other 
than land on the labor theory. Yet individual labor, it may 
be said, has never by itself produced anything in civilized 
society. Take, for example, the workman fashioning a chair. 
The wood has not been produced by him ; it is the gift of 
nature. The tools that he uses are the result of the con- 
tributions of others; the house in which he works, the 
clothes he wears, the food he eats (all of which are necessary 
in civilized society to the making of a chair), are the result 
of the contributions of the community. His safety from 
robbery and pillage — nay, his very existence — is dependent 
on the ceaseless co-operation of the society about him. How 
can it be said, in the face of all this, that his own individual 
labor wholly creates anything ? If it be maintained that he 
pays for his tools, his clothing and his protection, it may 
be answered that the landowner also pays for the land. 
Nothing is wholly the result of unaided individual labor. 
No one has a right to say: This belongs absolutely and com- 
pletely to me, because I alone have produced it. Society, 
from this point of view, holds a mortgage on everything that 
is produced. The socialists have been in this respect more 
logical; and that perhaps explains why the movement to 
which Mr. George gave such an impetus in England and 
elsewhere is fast changing from one in favor of land nation- 
alization into one for the nationalization of all means of 
production. The socialists, indeed, as well as Mr. George, 
are in error, because the premises of each are wrong. It 
is not the labor theory, but the social utility theory, which 








is the real defence of private property. But if we accept 
the premises of the single-taxers, we are inevitably impelled 
to go further than they do. The difference between property 
in land and property in other things is from the standpoint 
of individual versus social effort simply one of degree, not of 

The other fundamental doctrine of the advocates of the 
single tax is the theory of benefit, — the doctrine that a man 
ought to contribute to public burdens in proportion to the 
benefits that he receives. The theory is that, since the 
individual gets a special advantage from the community in 
the shape of unearned increment, he ought to make some 
recompense. To this contention, two answers may be made: 
first, that the benefit theory of taxation is inadequate ; and 
second, that, even if it were true, it would not support the 
single tax. Let us take up these in turn. 

It is pointed out in another chapter that the payments made 
by the individual to the government are exceedingly diverse 
in character.^ Where the government acts simply as a pri- 
vate individual, in performing certain services for the citi- 
zen, the payment is a price. It is a case of do ut facias. 
The government does something ; the individual gives some- 
thing. Again, even after common interests have developed, 
the individual may ask the government to do some particular 
thing for him, to confer some privilege upon him. He may 
wish to get married or to run a cab. For this particular 
privilege it is perfectly proper that the government should 
make a charge — known in modern times as a fee or toll. 
Again, the government may be at considerable expense in 
laying out a new street, the result of which will be to 
enhance the value of a particular plot of ground. There 
is then no reason why the government should not demand 
that the owner of this plot should defray, at all events in 
part, the cost of this improvement. This is called a special 
assessment. In all these cases the individual receives an 
undeniable, special benefit as the result of a special expendi- 

1 Infra^ chap. ix. 



ture made by the government. The principle of give and 
take, therefore, is applicable. 

On the other hand, there are certain actions of the govern- 
ment which interest the whole community, and from which 
the individual receives no benefit, except what accrues to him 
incidentally as a member of the community. If the govern- 
ment undertakes a war, no one citizen is benefited more than 
another. If the government spends money for cleaning the 
main thoroughfares, for erecting tribunals, or for patrolling 
the city by police, it cannot be claimed that any one indi- 
vidual receives a measurable, special benefit; all are equally 
interested in good government. When payment is made 
for these general expenditures — and such a payment is 
called a tax — the principle of contribution is no longer that 
of benefits or of give and take, but of ability, faculty, capac- 
ity. Every man must support the government to the full 
extent, if need be, of his ability to pay. He does not 
measure the benefits of state action to himself first, because 
these benefits are quantitatively unmeasurable; and secondly, 
because such measurement implies a decidedly erroneous con- 
ception of the relation of the individual to the modern state. 

At one time the doctrine of benefit had a relative justifica- 
tion. A century ago, when the absolute rulers of central 
Europe loaded down their subjects with grievous burdens 
and devoted the profits to their own petty pleasures — 
when in France, for example, the peasant was taxable d 
merci et misSricorde of the nobility — it was natural that 
a school should arise to protest and to proclaim the principle 
of benefits. Their argument was that as the state protects 
everybody, everybody is under a duty to pay taxes; in 
other words, their plea was for universality of taxation. 
This was a distinct step in advance. Later on, however, 
the doctrine was stretched to assert that everybody should 
pay in proportion to benefits received, with the implication 
that if the state could not be proved to confer any special 
benefit on the individual, he should not be held to pay any- 




72 . 


As thus extended, the theory has been rejected by well-nigh 
all the thinkers of the last fifty years. It is now generally 
agreed that we pay taxes not because the state protects us, 
or because we get any benefits from the state, but simply 
because the state is a part of us. The duty of supporting 
and protecting it is born with us. In civilized society the 
state is as necessary to the individual as the air he breathes ; 
unless he reverts to stateless savagery and anarchy he cannot 
live beyond its confines. His every action is conditioned by 
the fact of its existence. He does not choose the state, but 
is born into it ; it is interwoven with the very fibres of his 
being ; nay, in the last resort, he gives to it his very life. 
To say that he supports the state only because it benefits 
him, is a narrow and selfish doctrine. We pay taxes not 
because we get benefits from the state, but because it is as 
much our duty to support the state as to support ourselves 
or our family ; because, in short, the state is an integral 
part of us. 

The principle of benefit, moreover, would lead us into the 
greatest absurdities. If we accept it, we must apply it logi- 
cally ; we must not restrict its beneficent workings to the 
landowner. As has been pointed out in another place,^ the 
poor man, according to the theory of benefit, ought to be 
taxed more than the rich, because he is less able than the 
rich man to protect himself. It is, however, needless to 
discuss this point because, as we have seen in a previous 
chapter, ability to pay is not only the ideal basis of taxation, 
but the goal toward which society is steadily working. It 
lies instinctively and unconsciously at the bottom of all our 
endeavors at reform. When we say that indirect taxes are 
on the whole unfair to laborers, we mean that they are less 
able than the wealthier portion of the community to pay 
the tax. When we say that a corporation with large 
receipts should pay more than one with small receipts, 
we do so because we know that its ability to pay is greater. 
The principle of privilege or benefit is, therefore, not 

* See my work on Trogressivt Taxation in Theory and Practice., p. 83. 



the basis of taxation. It is the principle away from which 
all modern science and progress have been working. It is 
founded on a false political philosophy, and it can result only 
in a false political economy. 

But even if we accept the principle of benefit or oppor- 
tunity, it will not justify the demand for the single tax. 
This question, however, is so intimately interwoven with 
the problem of the justice of the single tax that we shall 
discuss it a little further on under that head. 

III. Practical Defects, 

Let us now leave the abstract discussion of principles and 
come to the objections that may be urged against the single 
tax as a practical method of tax reform. These defects may 
be summed up under four heads : First, the fiscal defects ; 
second, the political defects ; third, the moral defects ; and, 
fourth, the economic defects. 

1. Fiscal Defects, 

One of the great aims of every sound financial system is 
to bring about an equilibrium of the budget — that is, to 
avoid a surplus as well as a deficit. Now, while many taxes 
may be suddenly lowered, not many of them can be made to 
give a suddenly increased yield. One of the cardinal prin- 
ciples of taxation, therefore, is elasticity, in order to secure 
which requires two conditions. In the first place, the source 
from which the tax is derived must be of such a nature that 
an increase of the rate will always mean an increase of the 
yield. There should be in the source of taxation a reserve 
power which can be drawn upon in case of need. Secondly, 
the revenue should be secured from a number of objects, so 
that the shrinkages or deficits temporarily due to the one 
class may be made good by the increase or surplus revenues 
of the other class. Among the elastic taxes is the income 
tax, and it is well known that in English finance one of the 

.. I 








chief functions of this income tax is to preserve the equilib- 
rium of the budget. So again, certain taxes on commodities 
are often utilized for this purpose. The single tax on land 
values, however, is utterly inelastic ; for since, according to 
the theory of its advocates, the total rental value is to be 
taken from the landowners, the single tax cannot be increased. 
Where nothing has been left, nothing more can be taken. 
In the case of an emergency there would, therefore, be no 
possibility of increasing the revenues. Even if the total 
land value were not taken, it would still remain true that a 
direct tax on the unimproved value of land is far more 
inelastic than other taxes ; for when the supply is constant 
and the price is fixed only by conditions of demand, the sell- 
ing value as well as the rental value is subject to far more 
fluctuations than in commodities where the supply may be 
diminished at pleasure. Furthermore, as we have seen, a 
single tax of any kind, whether on lands or on anything 
else, would be less elastic than a system of taxes where one 
may be played off against the other. Lack of elasticity is 
a serious defect in the single tax. 

Another fiscal weakness of the single tax is that it inev- 
itably intensifies the inequalities resulting from unjust 
assessments. We all know how difficult it is to carry out 
laws which provide for equal assessments. Under the real 
estate tax in the United States, for example, the assessors 
are usually sworn to rate the property at its actual or selling 
value, and the selling value of a piece of land or of a house is 
comparatively easy to ascertain; yet it is notorious that in no 
two counties, nay even in no two adjoining pieces of property, 
is the standard of assessment the same. Thus the report of 
the Iowa Revenue Commission of 1893, states that realty in 
Iowa was assessed at from seventeen to sixty per cent of the 
true value. It is well known, too, that in the city of Chicago 
adjacent plots of real estate are assessed at percentages of 
ridiculously varying degree. Now, it is manifestly not so easy 
to assess the land values, — that is, the bare value of the land 
irrespective of all improvement, — as it is to assess the selling 



value of a piece of real estate. For instance, an acre of 
agricultural land near a large town may be worth $200; but 
if used for truck-farming, considerably more than $200 may 
have been expended on it during the last century or two. 
Who can tell how much of the $200 present value is the value 
of the bare land and how much is to be assigned to the labor 
expended ? Under the present method we have at least a 
definite test — the selling value ; under the new method we 
should have no test at all. There is every likelihood, there- 
fore, that the difficulties of the present situation would be 
intensified. Moreover, under the present system, inadequate 
as it is, there is always a chance that the imperfect enforce- 
ment of a particular tax law will be offset by the assessment 
of other taxes, direct or indirect. Under the single tax not 
only would there be more difficulty than at present in 
making the original assessment, but the inequality of the 
assessment, which is inseparable from all democratic methods, 
would be seriously intensified by the very fact that it is a 
single tax. 

2. Political Defects, 

The adoption of the single tax means the total abolition 
of all custom houses and import duties ; it means that there 
can be no such thing as a system of protection to home indus- 
try. Many would, it is true, favor the single tax precisely 
on this account ; but there are some self-styled " single- 
taxers " who believe that as a matter of national policy there 
is a justification for import duties. Whatever we may think 
of the economic justification of import duties, it must be 
recognized that they may sometimes form an important 
political weapon. It is clear, however, that leaving the ques- 
tion of protection entirely aside, the adoption of the single 
tax will make it impossible to utilize import duties for politi- 
cal, fiscal or other purposes. 

In the second place, the adoption of the single tax would 
render it impossible for governments to utilize the taxing 







power as a political or social engine in any other way. For 
instance, the United States government now imposes a tax 
on the circulation of state bank-notes in order to bring about 
certain desirable results in the currency situation. Under 
the single tax this would be impossible. Again, the United 
States government levies a high tax on opium, not for the 
purpose of revenue, but in order to discourage the consump- 
tion of opium ; and it also assesses a tax on oleomargarine, pri- 
marily in order to ensure the purity of butter. Under the 
single tax, all such efforts would be impossible. Finally, to 
mention only one other example, one of the chief methods of 
dealing with the drink question is through the imposition of 
high liquor licenses, the fiscal importance of which is only 
secondary. Under the single tax we should be prevented 
from attacking the problem in that way. Governments have 
always made use of the taxing power to regulate and to 
destroy, as well as to yield a revenue. Were the single tax 
to be adopted, this salutary power would be entirely taken 

Thirdly, the political results of the single tax would be 
dangerous in another way. So far as there is any truth 
in the assertion that in a democracy it involves some risk for 
a small class to pay the taxes and for a large class to vote 
them, it is especially applicable to the single tax. Since 
the " unearned increment " would flow of itself, silently and 
noiselessly into the treasury, there would be no need of a 
budget; and the sense of responsibility in the citizens would 
be perceptibly diminished. It is well known that liberty 
has been intimately bound up with the contest against 
unjust taxation ; the constitutional history of England is 
to a large extent a history of the struggle of the people to 
gain control of the treasury ; the American Revolution was 
precipitated by a question of taxation ; the French Revolu- 
tion was brought about primarily by the fiscal abuses of the 
ancien rSgime. To take away, then, from the vast majority of 
citizens the sense of their obligation to the government, and 
to divorce their economic interests from those of the state, 

would, especially in a democracy like that of America, be 
fraught with serious danger. 

3. Ethical Defects. 

The advocates of the single tax love to base their arguments 
on the ground of justice. In this they are certainly wise ; 
for even though all other arguments were in its favor, if 
the justice of the single tax could be successfully impugned, 
it would be foredoomed to failure. Let us then ascertain 
whether it is indeed true that the single tax is an equitable 
method of taxation. 

The two great canons of justice in taxation are univer- 
sality and uniformity or equality. If anything has been 
gained by the revolutions of the eighteenth century and by 
the growing public conscience of the nineteenth, it is a 
recognition of the fact that aU owe a duty to support the 
state, that a system of wholesale exemptions is iniquitous, 
and that all taxpayers should be treated according to the 
same standard. Judged by any or all of these tests, can it 
be seriously maintained that the single tax is an equitable 
form of taxation ? 

Toward the close of the eighteenth century, there was a 
school of French writers, the Physiocrats, who first advo- 
cated the plan of a single tax on land — the famous impSt 
unique. It was considerably talked about until Voltaire 
turned his caustic pen upon them and wrote the cele- 
brated essay L' Homme a quarante Scub — the man of forty 
crowns — , one of the most effective bits of mordant sar- 
casm ever written. Voltaire pictured the position of the 
French peasant toiling laboriously, amid conditions of 
unspeakable distress, but succeeding in getting from the 
soil a product equivalent to forty crowns. The tax-gatherer 
comes along, finds that the peasant can manage to keep 
body and soul together on twenty crowns, and takes away 
the other twenty. Then the peasant meets an old acquaint- 
ance, originally poor, who has been left a fortune of 



400,000 crowns a year in money and securities. He rolls 
along the highway in a six-horse chariot, with six lackeys, 
each with double the peasant's income ; his maitre d'hdtel 
gets 2000 crowns salary and steals 20,000 ; his mistress 
costs 80,000 crowns a year. " You pay of course half your 
income, 200,000 crowns, to the state?" asked the peasant. 
" You are joking, my friend," answered he, " I am no landed 
proprietor like you. The tax-gatherer would be an imbecile 
to assess me ; for everything I have comes ultimately from 
the land, and somebody has paid the tax already. To make 
me pay would be intolerable double taxation. Ta-ta, my 
friend ; you just pay your single tax, enjoy in peace your 
clear income of twenty crowns ; serve your country well, and 
come once in a while to take dinner with my lackey. Yes, 
yes, the single tax, it is a glorious thing." This little pict- 
ure, perhaps, did more than all else to nullify the efforts of 
the Physiocrats. 

We shall later discuss the effects of the modern single 
tax on the farmer, but the principle underlying Voltaire's 
thought is equally applicable here. On what grounds of 
morals or justice shall the landowner be singled out for 
taxation ? 

We have seen that the theory of natural rights is not ade- 
quate ; we have learned that the principle of opportunity 
does not correctly portray the relations of the individual 
to the state. Even if the theory of unearned increment 
were true it would not by any means justify the single tax 
on land values. In the first place, land values do not 
always or necessarily increase ; and, secondly, there are a 
great many other values which do increase, and which 
increase mainly by the operation of forces which the owner 
of the property neither creates nor controls. 

Land values do not always or necessarily increase. Thus, 
in the testimony given before the Rapid Transit Commission 
in the city of New York in March, 1895, one of the wit- 
nesses spoke of several long avenues being lined with 
the graves of property-owners. What did he mean ? 




Simply that ten, or twenty, or thirty years ago, certain 
individuals had invested in the land, in hopes of a rise in 
value, just as people invest in bonds or stocks or other 
securities. Instead of values rising, however, they remained 
stationary or even decreased ; while, in the meantime, the 
accumulated taxes and assessments upon this non-productive 
property completely ruined many of the investors. It is 
indeed true that in most growing cities land values in certain 
localities will increase ; but it is equally true that there are 
always sections in such cities where, for obvious reasons, 
land values decrease. These facts are familiar to all observ- 
ers in large cities. Moreover, in some European countries 
the rental value of the land, as a whole, is less to-day than it 
was a few decades ago. The tax on land value would there 
yield only a precarious revenue, since there has been no 
unearned increment, but a decrement. 

More important still is the fact that even though land 
values often increase, similar increase in value is not by any 
means confined to land. Let us ask any one whose mind is 
not befogged by the mist of erroneous enthusiasm : Who 
are the rich men of the world to-day ? How has by far 
the greater part of our huge individual fortunes been 
acquired ? Let us study the way in which men have become 
millionaires, especially in the United States. The usual 
cause is some fortuitous conjuncture of events, some chance 
happening due to no one's labor, but to a turn in the 
wheel of fortune — call it speculation, call it luck, call it 
by any name we will. How have most of the fortunes in 
Wall Street been made? Who is responsible for the in- 
creased value of investments ? Who can say that the suc- 
cessful manager of the ring, the corner, the pool and the 
trust has worked out his salvation through his own indus- 
try? Land speculation is only a part, and a very small 
part, of the sum total. If it be claimed that the fortunate 
speculator deserves his fortune because of his sagacity and 
foresight, why deny these attributes to the landowner? It 
can, of course, not be denied that wealth has been acquired 

- 11 








by thrift and industry; but it remains true that most 
of the very large fortunes that strike the common observer 
are due to these incalculable turns in the wheel of fortune, 
and that the so-called unearned increment of land values 
forms only a small share of these total gains. 

It must not be forgotten that the modern age is the age 
of speculation, differing from former periods in that " time 
speculation " has supplanted " place speculation." No econo- 
mist would to-day venture to deny that speculation has its 
legitimate uses, and that the stock and produce exchanges 
of the present day play an indispensable part in the econ- 
omy of our complex industrial society. But speculation is 
largely responsible for modern fortunes ; and land specu- 
lation is simply a species in the larger genus. Value is 
a social phenomenon, not an individual phenomenon. A 
house in a desert is worth nothing ; a house in a small 
town is worth more ; a house in a large city is worth still 
more. The house is in part the product of labor, but the 
greater demand increases the value. A newspaper also is 
more profitable in a city than in a village. Thus, if social 
environment gives a value to bare land, the same social 
environment increases the demand for other commodities. 
If it be said that land differs from other things in that it 
is a monopoly, the answer is irresistible that if there is 
any one thing which distinguishes the modern age, it is the 
development of industrial monopoly; we live in a period 
of pools and trusts and economic monopolies of all kinds. 
So important, indeed, have these become that modern 
economic theory has been compelled to supplement the old 
doctrine of value which was based on the assumption of 
free competition by a newer and more comprehensive theory, 
especially applicable to all these modern forms of monopoly 
price. These monopoly profits cannot be reached by a tax 
on land values. 

On what possible theory of justice, then, shall we tax the 
man who has invested f 100,000 in land which the next year 
appreciates fifty per cent ; and, on the other hand, exempt 


the man who has invested $100,000 in the stock of the 
Sugar Trust, which the next year may also enhance fifty 
per cent? Why should the earnings invested in land be 
taxed and the earnings invested in the Sugar Trust be 
wholly untaxed? Why should the earnings invested in 
land be taxed and the earnings invested in any railway 
bond be wholly untaxed ? 

It might, indeed, be claimed that the railway stockholder 
will be affected by a tax on the land owned by the corpora- 
tion : but it is difficult to see how the railway bondholder 
can be reached by any tax on land values except in so far 
as the ultimate security for his debt may be affected. As the 
bonded indebtedness of the railways to-day far exceeds their 
capital stock it appears that, even in the case of these indus- 
tries whose increasing values are largely due to the influence 
of the community, the majority of investors would scarcely 
be touched. In the great mass of industries, of which the 
Sugar Trust is an example, where the land owned by the cor- 
poration is of exceedingly small consequence as compared 
with its other assets, it is plain that a tax on land values 
would not reach even the stockholders or the owners proper. 
Almost every industry, moreover, is dependent for its in- 
creasing profits upon the development of the community, 
that is, upon the increasing demand for the product. Land 
rises in value because there are more people who want to 
occupy that land ; the earnings of the Sugar Trust have 
increased chiefly because there are more people who want 
sugar. In each case the increased returns are due primarily 
to social causes ; in each case we have a monopoly. One is 
a natural monopoly and the other is an economic or artificial 
monopoly ; but, for all practical purposes, there is no dis- 
tinction between them. To confiscate the capital invested 
in land with the chance of the land either falling or rising 
in value, while exempting absolutely the capital invested in 
corporate or industrial securities, is but a travesty of justice. 
It will be impossible to convince the common people that 
so-called unearned increments are confined to land. As a 

.1 ! t 



I ; 





matter of fact the " unearned increment" of land is only one 
instance of a far larger class. 

We must, on the contrary, plant ourselves firmly on the 
basis of faculty or ability to pay. So far as a man receives 
special opportunities from the community, which undoubt- 
edly increase his ability to pay, they should be taken into 
account in framing any scheme of taxation. But let us 
not single out one special opportunity, because it strikes 
the eyes of urban observers, while we neglect all the 
other opportunities which are equally, or almost equally, 
the result of social forces. The single tax on land values 
is unjust ; first, because opportunity is not the only ele- 
ment that must be taken into account; and, secondly, 
because, even though it were, revenues from land are by no 
means the only form — nay, not even the most important 
form — of the results of special opportunity. The single 
tax is unjust because it is exclusive and unequal. 

But, even though the single tax were absolutely just 
in theory, it would not yet follow that it would be prac- 
ticable. Let us, therefore, come to the final part of our 

4. Economic Defect%, 

These considerations which have often been overlooked, 
may be discussed from three points of view : first, the 
economic effect of ^the single tax on poor and new commun- 
ities ; second, the economic effect on farmers and the agri- 
cultural interests in general ; third, the economic effect on 
rich communities. 

In the first place, what would be the effect on poor and 
new communities ? 

When an American farmer goes to the virgin soil of the 
Northwest and stakes out his farm, he finds virtually no land 
value at all ; land can be secured by any one on the pay- 
ment of a merely nominal sum. The only property of these 
new farming communities consists of the log cabins erected on 



the land; of the tools, implements and beasts of burden used 
for tilling the land; and of the personal effects and money 
that are in many cases brought along by the farmers. The 
great mass of their possessions, therefore, consists of per- 
sonalty. In so far as there is any real property at all, it 
is only to an exceedingly slight extent composed of land 
values. There is practically no land value. How then, it 
may be asked, can taxes be raised in this new community ? 
How can the roads be laid out, the schoolhouses be erected, 
and the other improvements be effected? Since land values 
are non-existent, a tax on zero must be zero. Even if any 
land values exist, the total confiscation of them would not 
suffice to defray any considerable part of the necessary ex- 
penditures. For proof, take any of the assessors' reports in 
the new American states, and it will be found that, contrary 
to the conditions of the rest of the country, the assessed per- 
sonal property far exceeds in value the total assessed real 
estate. For instance, in 1890 personalty was to total realty 
in Montana as 58 to 55 millions of dollars, in Wyoming as 
20 to 13 millions, in New Mexico as 28 to 15 millions, in 
Arizona as 18 to 10 millions. Compare these figures with 
the older sections, as New York or Pennsylvania, where the 
proportion was as 382 to 3404 millions and 618 to 2042 
millions respectively. ^ If we are to abolish not only the tax 
on personalty, but all that part of the tax on realty which 
is not drawn from land values, it can easily be seen how 
impossible it would be to carry on government in these sec- 
tions. A tax on the land valui^s would be lamentably 

What has been said of new communities applies almost 
equally well to poor communities, that is, to communities made 
up largely or almost entirely of farm lands and of an agricult- 
ural population. The " single-taxers " themselves claim that 
land values amount to practically nothing in the farming 
districts. We shall see below the fallacy in this general 

1 These figures are taken from the census reports of 1890. See AhstrojU 
of the Eleventh Census: 1890 (1894), p. 196. 




contention; but so far as the community is a poor one 
there is undoubted truth in the statement that land values 
are trivial. If this is true, how can the expenses be de- 
frayed by a single tax on land values? In the testimony 
recently taken before the tax commission of Massachusetts, 
one of the single-taxers who was testifyinsf as to the situa- 
tion in certain rural townships was asked the question: 
How will it be possible for this poor town, in which there is 
very little land value, to raise its taxes ? The witness was 
compelled to reply that it would be impossible for the com- 
munity to do so, and he suggested that the expenses of the 
poor communities should be defrayed in large part from the 
revenues of the rich communities.^ 

This remedy is somewhat visionary; for with the Ameri- 
can theories of local government, it would be almost impos- 
sible to induce certain sections in the community to assume 
the burdens of other sections. We are all acquainted with 
the continual bickerings in our state taxation, due to the 
efforts of the richer counties to escape paying more than 
their proportion of the general state taxes; and we have 
recently seen the discontent aroused by an attempt in the 
shape of the federal income tax to make certain wealthy 
sections of the country pay the larger part of the revenue 
of the national government. Where these efforts have given 
rise to so much dissatisfaction, it is obviously out of the 
question to suppose that the purely local expenses of any 
community will ever be defrayed by the efforts of other 
communities. In local matters, at least, every county and 

1 Hearings relating to Taxation, 1893, pp. 185-188. The committee in 
its final report states : »' Even Henry George admitted a few years ago [in an 
address at Boston, Feb. 22, 1889] that if his scheme were put into operation 
it would cause the savings banks and life insurance companies to fail, and that 
in an agricultural community it might be difficult to raise the money thought 
to be needed for municipal wants. But as a people could only have what the 
plan would furnish, they must economize and bring their wants within their 
means. This means, among other things, poorer schools and libraries, and 
therefore a more limited education for the young, and a less tender care of 
the aged and helpless who are cared for in our charitable institutions." 
Beport of the Joint Special Committee on Taxation, 1894, p. 38. 



town must stand on its own feet; and if the single tax is 
unable to defray even the local expenses of a poor com- 
munity, not to speak of its share of general state or federal 
expenses, it is clearly beyond the realm of practical politics. 
In poor communities, as well as in new communities, the 
single tax would be an impossibility. 

Let us consider, next, what would be the effects of the 
single tax on farmers in general. One of the claims of the 
advocates of the system is that it would relieve the farming 
population of the burden of taxes, now weighing upon them. 
A careful consideration of the facts shows, however, that 
this claim is unfounded, and that, on the contrary, the only 
result of the single tax would be to make the farmers pay 
more than they are paying to-day. This can be proved by 
recent statistics. 

In only a few states is a distinction made in the assess- 
ments between land and improvements on land. Let us 
take, as a typical instance, Ohio county, in West Virginia, 
in which the city of Wheeling is situated. In the auditor's 
report for 1892, we find the following figures : — 



Ohio County. 

Entirk State. 

OF Ohio 



Value of buildings on lots, 



Value of buildings on lands, 



Total value of buildings, 




Value of town lots without build- 




Value of land without buildings, 



Total value of all land without 





Total value of lands, lots and 





Value of personalty, 




Present total assessments, 








In other words, whereas Ohio county now pays ten and 
one-half per cent of all taxes, and would pay about the same 








if real estate alone were taxed, if the single tax were intro- 
duced it would pay only five and one-half per cent of the 
total taxes, or about one-half as much as at present. If the 
large towns would pay so much less, of course the farmiu'^r 
districts would have to pay so much more. The improve- 
ments in the towns are worth more than the value of the 
bare land ; while in the country districts the reverse is true. 
As another example let us take California. In the comp- 
troller's report for 1893, we find the following figures : — 





San Francisco, 

Total state. 

Yalitk or Rkai. 


(«.e. bare land.) 






Valits or Impbovb- 



9 1,283,265 





Batio or Land 

Values to Total 

Bkal Ebtar. 

Per cent. 






We thus see that while in the city of San Francisco im- 
provements equal thirty per cent of the total real estate 
value, in some of the country districts improvements are 
only ten or fifteen per cent of the total. Taking the state 
as a whole, land values equal seventy-six per cent of all real 
estate, while in San Francisco land values are only seventy 
per cent of all real estate. To levy the single tax would, 
therefore, make San Francisco pay less, and some of the 
country counties far more, than at present. 

Again, let us call attention to the report of the Commission 
on Valuation, made in 1892 to the Pennsylvania Tax Con- 
ference, which is probably the most careful attempt yet made 
to distinguish land values from improvements. We find the 
following figures : — 

Valttk or Land. 

Philadelphia county, 

Purely agricultural land in 

Philadelphia county, 
Entire state, all land, 
Entire state, agricultural land, 


Valctb or Improvxicexts. 





The proportion of land values to total valuation of all 
property is, in the county of Philadelphia, thirty-six per 


cent ; in the agricultural counties of Sullivan and Greene, 
eighty-one per cent and seventy-five per cent, respectively ; 
and in the whole state, fifty-two per cent. The Commission 
concludes : "As a rule, in agricultural counties the land 
values are the greatest, as would be expected ; while in 
manufacturing counties and those having large cities, the 
value of the improvements is equal to that of the land, or 

Let us now choose some Western states. In the report 
of the auditor of Colorado for 1894 we find the following 
figures : — 

Value of agricultural and grazing land, irrespec- 
tive of improvements 936,907,810 

Value of improvements 7,492,022 

Value of town and city land, irrespective of im- 
provements 63,080,205 

Value of improvements 34,788,941 

In other words, in the towns improvements constitute 
about one-third of the total values ; whereas in the country, 
improvements are only about one-sixth of the total. 

As to Montana we find, in the report of the Board of 
Equalization for 1894, the following figures : — 

Value of city and town lots .... 129,362,754 

Value of improvements on same . . . 15,156,115 

Value of land 17,493,680 

Value of improvements on same . . . 7,287,887 

In Lewis and Clarke county, the home of the largest 
city in the state, the total value of all land was $11,397,860 ; 
that of improvements, $5,269,300. In some of the agricult- 
ural or grazing counties, however, the value of the land was 
far higher in proportion to the improvements; in Meagher 
county, for example, land was $1,821,385, while improve- 
ments were only $629,054. Most striking of all, in this very 
same county, in the case of agricultural property, the figures 
were, land $1,218,474, improvements $266,824; while in the 
town lots the figures were, bare land $602,911, improvements 
1,375. In other words, not only are improvements 







proportionately less in the rural counties, but even in 
these rural counties by far the larger proportion of the 
improvements are found in the little towns, as compared 
with the farming or grazing land proper. 

In the state of Washington, the State Board of Equaliza- 
tion agreed on the following figures for 1893 : — 

Value of land exclusive of improvemento 
Value of improvements 
Value of city and town lots 
Value of improvements 





In Utah, Salt Lake county, the seat of the chief city, 
assessed, in 1893, real estate, exclusive of improvements, at 
$31,347,670 ; improvements, at $9,483,141. In rural coun- 
ties like Rich county and Cache county, the figures were, 
in the one case, realty $527,666, improvements $81,445; 
in the other case, realty $3,771,810, improvements $915,614. 
Here again, the more densely settled the township, the 
greater in proportion is the value of the improvements. 

Finally, in North Dakota, the State Board of Equalization 
has fixed the valuation for 1894 at these remarkable figures: 

Value of land exclusive of improvements 
Value of improvements 
Value of town or city lots . 
Value of improvements thereon . 


::r i 

In all these cases — and they might be multiplied ad infini- 
turn — it is seen that the value of the improvements is, on the 
whole, greater in the urban than in the rural districts. To 
many this will be a surprise, because they are apt to be blinded 
by the immediate facts about them. The single tax advocate 
generally lives in the city, and sees before him a city lot, 
each foot of which will sell for hundreds or perhaps thou- 
sands of dollars. The town lot, he is apt to exclaim, is 
worth hundreds of times as much as a piece of land in the 
agricultural districts. This is perfectly true; but it proves 
nothing as to the comparative ability of their owners to 
pay taxes because it overlooks a point of the greatest im- 


portance. When we compare urban with agricultural land 
values, we do not compare foot with foot, but total units 
with total units. Thus, an acre of land in New York City 
may be worth a thousand times as much as an acre of land in 
the country; but it must be remembered that there are many 
thousand times as many acres in the country as there are 
acres in New York City. A lot in New York may be worth 
ten thousand dollars, but a farm of five hundred acres in 
the country may also be worth ten thousand dollars, exclu- 
sive of improvements. We must, therefore, compare, not 
the value per foot in the New York lot with the value per 
foot in the country farm, but we must compare the value of 
the New York lot with the value of the country farm. The 
farmer who has paid ten thousand dollars for his farm, and 
has then proceeded to improve and cultivate it, will not be 
satisfied, when the assessor taxes him, and exempts all the 
business men, house-owners and security holders in the 
adjoining village ; he will not be satisfied with the statement 
that the owner of a ten-thousand-dollar lot in New York 
City pays a hundred times as much per front foot. He will 
be apt to reply that it makes no difference to him whether 
the New Yorker's ten thousand dollars is taken away; but 
that he objects to his own ten thousand dollars being taken 
away, while his neighbors in the village, who are far richer 
than he, pay no taxes at all. In short, while attention is 
directed to the fact that land values are undoubtedly less per 
acre in the country than in the city, it is forgotten that the 
number of acres in the country is so many times larger than 
the number of acres in the cities that the total land values in 
the country will form a large part of the whole. Moreover, 
we have seen that the value of improvements is greater in 
the towns than in the country. In the country the farm- 
house is built for five hundred dollars ; in the city the fine 
stone mansion or steel business edifice is erected at a cost of 
thousands or hundreds of thousands of dollars. If, there- 
fore, all improvements were to be entirely exempted, the 
only result of a tax on land values would be to make the 


i i 





farmers pay more than they do at present. It is not 
denied that as between the general property tax as actually 
administered and a tax on real estate only, the farmer 
would be benefited by the adoption of the latter. For 
personal property, as has been elsewhere explained,^ is 
assessed, chiefly in the agricultural communities. The 
remedy, however, consists not in taxing only real estate, but 
in striving to reach the abilities of the owners of personal 
property by some other method than that of the antiquated 
general property tax. But even assuming that this reform 
cannot be effected, what the farmers would gain by the aboli- 
tion of the personal property tax, they would lose and far 
more than lose, as we have seen, by the total exemption of 
all improvements. 

No wonder the farmers realize that this will ruin them. 
Immunity from indirect taxes would be dearly purchased at 
such a price; for it would result in the destruction of the one 
class above all others upon which our prosperity rests — the 
class of independent small farmers. As long as the United 
States remains pre-eminently an agricultural community, it is 
not likely that the single tax will become a practical question. 

Thirdly, and finally, let us consider the economic effects 
of the single tax in rich urban communities. 

It is contended by the single-taxers, with special reference 
to the advantages claimed as likely to accrue to the tenement- 
house population of the large cities, that the introduction of 
their system would bring about the social millennium. It is 
supposed that if we abolish the tax on improvements, that is, 
on houses, the vacant lots will be built over as if by magic, 
rents will fall, the wages of the workmen will rise, and a 
period of general prosperity will be ushered in. 

It may be asked, in the first place, where all this addi- 
tional capital which is to be invested in houses is coming 
from. There is no fund floating about in the air which can 
be brought to earth simply by the imposition of the single 

1 Supra, p. 32. 



tax; the amounts to be laid out in houses must be taken 
from the capital now invested in some other form of pro- 
ductive enterprise. The amount of loanable capital in the 
money market at any one time is definitely fixed. Even 
deposits in banks are already invested, for the most part, 
in mortgages or in corporate securities; that is, they are 
already utilized for productive purposes. What is put into 
new houses will, therefore, simply be so much taken away 
from other productive employments. 

It may be asked next, how the rents of our tenement- 
house population will be reduced ? The theory that a tax on 
houses is shifted to the consumer or tenant is true enough, 
provided that the tax be exclusive — that is, provided that 
nothing be taxed except houses. If, on the contrary, the 
house tax is simply a part of a wider system of taxation ; if 
other forms of property are assessed like investments in land 
and in personal property ; if a corporation tax is imposed to 
hit the investors in corporate securities ; or if we have an 
income tax which is to reach general profits, — in all these 
cases the very conditions of the theory according to which a 
house tax is shifted disappear.^ To the extent, then, that the 
house tax is not a single tax, the tendency for it to be shifted 
will be diminished. The only result, in this direction, of the 
single tax would be, as a matter of fact, that people would 
pay their rent to the state instead of to private individuals. 
We hear a great deal about the unoccupied lands held for 
speculative purposes in large cities; but it may safely be 
affirmed that south of Forty-second Street in the city of New 
York — the home of the major part of the tenement-house 
population — not one-fiftieth of one per cent of the building 
lots lie idle, and of these some lots are occupied as coal 
yards, and some adjoining factories or large establishments are 
used for storage purposes. How then would the single tax 
relieve the inhabitants of the slums? They will not go to 
the suburbs where there is an abundance of land, for the same 
reason that they do not go there now. Rent in the suburbs 
1 See Tht Shifting and Incidence of Taxation (2d ed.), pp. 243, 245. 





'. t 


is at present considerably less than in the slums, which are 
nevertheless crowded. The average workman plainly prefers 
to be near his work, and to enjoy the social opportunities of 
contact with his fellow-workmen, evenings as well as day- 
time. Above all, he cannot afford the expenditure of time 
and money, necessary for conveying the various members of 
his family to and from the suburbs. Even assuming, there- 
fore, that there was some magic fund to cover the suburban 
lots with houses, the rents in the slums would scarcely be 

Finally, we may ask how the wages of the workmen are to 
be increased by the single tax. Wages can be increased 
only through an increase of capital or through an increase 
of the efficiency of the laborer. Taxation in itself cannot 
accomplish either of these results. To turn economic rent 
over to the state cannot increase capital one whit, nor can it 
augment the efficiency of the laborer. Not only can the 
single tax have no influence on the wages of labor, but as we 
have seen it cannot decrease the rentals of the tenement-house 
population. The whole fair dream of economic felicity thus 
resolves itself into mere mist, into mere nothingness; the 
tenement-house population would derive as little advantage 
as the American farmer from the single tax. 

So far as there is any truth in the doctrine that land in or 
near cities is largely held for speculative purposes, the diffi- 
culty can be met by the enforcement of now existing laws. 
The tax laws of the American states everywhere instruct 
the officials to assess property at its true or selling value, 
but it is notorious that unimproved lots are, as a rule, consid- 
erably undervalued as compared with those on which improve- 
ments have been erected. If, then, we simply enforce the 
laws as they exist, it will be far more difficult for any one to 
hold land on speculation. But the desired purpose may be 
accomplished without invoking the aid of the single tax. 

Furthermore, so far as there is an element of truth in the 
idea of unearned increment as applied to urban real estate, 
the problem is already, to a large extent, solved in America 



by the system of special assessments which takes for public 
purposes, and precisely at the time of its creation, the in- 
creased value which may properly be said to be due to any 
positive action on the part of the community. By enforcing 
the tax laws as they exist to-day and by extending the law 
of special assessments to all the cases which are properly 
referable to the principle of benefits, we shall do as much as 
is under existing conditions either practicable or equitable. 

IV. Conclusions, 

We have studied the single tax from different points of 
view; and we have seen that it is defective fiscally, politically, 
morally and economically. We have learned, first, that it 
would be inelastic, and that it would intensify the inequali- 
ties resulting from unjust assessments ; secondly, that 
although itself proposed chiefly from social considerations it 
would prevent the government from utilizing the taxing 
power for other social purposes, and that it would divorce 
the interests of the people from those of the government ; 
thirdly, that it would offend against the canons of universal- 
ity and equality of taxation, and that it would serioiisly 
exaggerate the difference between profits from land and 
profits from other sources; and finally, that it would be 
entirely inadequate in poor and new communities, that it 
would generally have an injurious influence on the farmer, 
and that even in the large urban centres it would exempt 
large sections of the population without bringing any sub- 
stantial relief to the poorer classes. 

It is clearly impossible to discuss in this place the wider 
claim of the single-taxers, that the application of their 
scheme would introduce the social millennium. If econo- 
mists thought that the distinguished single-tax leader had 
solved this problem, they would enthrone him high on their 
council seats; they would reverently bend the knee and 
acknowledge in him a master, a prophet. But when he 



' 'f 




comes to them with a tale that is as old as the hills ; when 
he sets forth in his writings doctrines that have long since 
been refuted ; when in his enthusiasm he seeks to impose a 
remedy which appears to them as unjust as it is one-sided, 
as inconsistent as it is inequitable, — they have a right to 
protest. This is not the first time that some enthusiast has 
supposed that he has discovered a world-saving panacea. 
The remedy for social maladjustments does not lie in any 
such lopsided idea ; the only cure is the slow, gradual evolu- 
tion of the moral conscience of mankind. We cannot solve 
the labor problem by any rule of thumb. Every student of 
history, of political philosophy, of economics, will tell us that 
the progress of the race has been slow and painful ; that the 
world has advanced step by step; and that each successive 
step, to be enduring, must be founded on justice. To sup- 
pose for a moment that the social millennium will be ushered 
in by any one sudden change— even were the change not so 
lamentably inadequate as the one above discussed — is an 
evidence not of wisdom, but of short-sightedness. 

Even as a method of tax reform, the scheme is, as we 
have seen, a mistaken one. Our system of taxation is far 
from being ideal, or even comparatively just ; for we are 
still clinging, in a great degree, to mediaeval errors. But 
whatever be the much-needed reform, it is safe to say that 
neither the common people nor the student will ever accept 
a scheme which is palpably unjust, which abandons the whole 
ideal theory of modern taxation— that of relative ability or 
faculty — and which seeks to put the burdens of the many 
on the shoulders of the few. 




Double taxation in the simplest sense denotes the taxa- 
tion of the same person or the same thing twice over.^ This 
is at once a very old and a very new phenomenon. It is 
very old so far as it is founded on mere extortion, on the 
caprice of government and on the desire to raise revenues 
without any regard to the relative burden on the taxpayer. 
All government was at first based on might. Although this 
was the original cause of the double taxation of one man 
and the exemption of his neighbor, it is in modern times 
entirely overshadowed by the second cause, which is essen- 
tially of recent growth. We live in an age of industrial 
complexity and differentiation. In former times property 
rights were simple, and the little capital that existed was 
largely owned by the producer. To-day not only does the 
same capitalist invest in different enterprises, not only is 
the producer often dependent for a part of his capital on 
sums that belong to others, but the old geographical unity 
has been dissolved, and there is no necessary connection 
between the residence of the capitalist and the place where 
his capital is employed. A system of taxation, therefore, 
which may have been perfectly just under the older and 
simpler conditions, may now be entirely inadequate because 
of the failure of government to take account of these new 

1 For a careful treatment of this entire subject as applied to American tax 
problems, the reader can now be referred to the recent doctor's dissertation 
by a former student, Francis Walker, Double Taxation in the United States^ 
published in the Columbia University Studies in History, Economics and 
Public Law, ¥aL v., no. 1 (1896). 





complications in property rights. As a matter of fact, almost 
all existing double taxation in civilized nations is due to 
inattention to these modern industrial intricacies. 

If we approach the subject of double taxation more closely, 
we are confronted by serious difficulties. There are almost 
as many kinds of duplicate taxation as there are kinds of 
taxes or of industrial relations. We find the term used with 
the utmost looseness, so that what may be in one state a 
very important species of double taxation may be quite 
insignificant in another. In the first state, then, the phrase 
" double taxation " always calls up a particular set of prob- 
lems; while in the other state the same phrase will denote 
something entirely different. Let us therefore endeavor to 
give an analysis of the phenomena which, while not entering 
into the details of the problem, will explain the principle in 
all states. 

There are two distinct categories of double taxation — 
that by competing jurisdictions or authorities, and that by 
the same jurisdiction or authority. The first is essentially 
geographical in character. It is partly due to the fact that 
modern wealth is more or less cosmopolitan. A man living 
in one state and owning property in another may be taxed 
on the same property by both states, because they compete 
with each other in claiming jurisdiction over that property. 
Not only is this true as between foreign countries, but it is 
equally true, and in fact of far greater importance, as between 
conflicting authorities in the same country. The separate 
commonwealths in a federal state, the separate counties in a 
commonwealth, the separate towns in a county — each and 
all of them may make conflicting claims on the same individ- 
ual or on the same piece of property. Double taxation — 
or it may be triple or quadruple taxation — by competing 
jurisdictions is thus a product of the modern mobility of 
capital and labor ; and with the growing importance of local 
taxation, the difficulties are multiplied. 

It may happen, however, that a single authority — the 
same town, county, commonwealth or nation — is confronted 




by essentially similar difficulties as to property or persons 
within its jurisdiction. Thus a man buys a piece of land, 
and borrows part of the purchase price from another man 
living in the same town. If the town taxes the value of the 
land, which in this case includes the value of the mortgage, 
and then taxes the mortgage, the question of double taxation 
immediately presents itself. So, again, if a man invests his 
property in the stock of a corporation doing business in the 
same place while the state taxes both the investor and the 
corporation, we are confronted by the same difficulty. In 
such cases the taxes are imposed by the same authority or 
jurisdiction. Let us discuss each class in turn. 

I. Double Taxation hy the Same Authority, 

The simplest case arises when a person is taxed on his 
property, income or profits, while an additional tax is im- 
posed on the property, income or profits of the business 
in which he is a partner. This is such a flagrant case of 
double taxation that it is not practised by any civilized 
government. For, clearly, the business income is to that 
extent the individual income. This case may therefore be 
neglected as of no practical moment. 

The first important instance of double taxation arises when 
an attempt is made to tax property and also to tax income ; 
or to tax either property or income, and also to levy a busi- 
ness or license tax. On this point there is much misconcep- 
tion ; many consider this to be wrong, because it is double 
taxation. As a matter of fact, however, if all are put upon 
the same plane, the simultaneous taxation of property and of 
income works no injustice. If all the members of the class 
are treated alike, it makes no difference whether there is one 
single high tax on property, or a low tax on property and 
another low tax on the profits of the property. In fact, the 
government would be perfectly justified in taxing the prop- 
erty, the income of the property and also the expenses or 
any other attribute of the property. All such duplicate or 




triplicate taxes are perfectly reasonable so long as they fall 
equally on all. Taken together, they amount simply to a 
high rate for a single tax on the property. Double taxation, 
therefore, is not always wrong ; it is unjust only when one 
taxpayer is assessed twice while another in substantially 
the same class is assessed but once. It is the inequality of 
taxation that instinctively shocks us. But if all persons 
within the class are equally subjected to the burden, there 
can be no just complaint. 

It may be objected that people are not treated alike when 
they pay different taxes on the same income. Our opinion 
must depend, however, entirely on the attitude we take 
toward what is called ''differentiation" of taxation. If we 
maintain that all incomes should be taxed alike, irrespective 
of source, the objection would be valid. But modern theory 
has formulated the demand for a distinction between earned 
and unearned incomes, or between incomes from labor and 
incomes from property. Even so conservative a writer as 
John Stuart Mill was an adherent to this principle, which is 
at present quite generally admitted. This " differentiation " 
ma}^ be secured in two ways. A lower rate may be levied 
on labor incomes than on property incomes, as in the present 
North Carolina income tax, as in the former Virginia income 
tax, and as in Italy, in Holland and in some of the Australian 
colonies. But instead of making a difference in the rates, 
the same result may be reached by levying a uniform tax on 
all incomes and an additional tax on property, so that the 
income from property thus indirectly pays a higher rate. 
This is the case in Prussia and in some of the Swiss cantons, 
where the property tax and the income tax are levied on 
the same property. In other words, property income is 
put into a different class from labor income. It is taxed 
twice — once on property and once on income — because 
the seeming inequality is considered to be really a higher 
equality. It is double taxation, but it is not unjust double 

In some places the principle of differentiation has not yet 



been adopted. When the income tax is added to the prop- 
erty tax, the income from property already taxed is exempted, 
as in Massachusetts and in some of the Swiss cantons. Many 
difficulties have, however, arisen in the endeavor to distin- 
guish these property incomes. Thus in Massachusetts the 
question presented itself whether the income from a business 
could be taxed, if the property invested in the business was 
already taxed. In a leading case this practice was upheld 
on the ground that business profits are the result not only of 
the capital invested, but of the industry and skill of the 
capitalist. 1 Although this is no doubt true, as a matter 
of fact the interpretation of the Massachusetts law is unjust 
because incomes derived solely from land or from other in- 
vestments pay only once, while incomes derived from busi- 
ness enterprise pay twice, once on the property invested and 
again on the income derived. It is this inequality of the tax 
which renders the system crude and inequitable. This has 
been recognized in practice, and the custom has arisen for 
the assessor to allow six per cent on the capital invested in 
the business as representing the income from capital, and 
to levy the income tax only on the surplus profits. In the 
Swiss cantons similar provision is made by law and applies 
to incomes from all property, the amount exempted being 
four to five per cent of the capital. These figures are, 
indeed, entirely arbitrary, although they represent an inter- 
esting attempt to avoid double taxation.* 

If, however, we accept the principle of differentiation, this 
attempt is to a certain extent unnecessary. The higher 
taxation of income from property as compared with income 
from other sources is theoretically defensible, although the 
exact amount of increase cannot be fixed a priori. It is 
only when the additional rate exceeds this amount that we 

1 Willcox vs, Middlesex, 103 Mass. 544. Cf. the interesting discussion in 
J. A. Lane, Address on Taxation with Special Reference to Taxation upon 
Income derived from Property subject to Taxation^ Boston Executive Busi- 
ness Association, 1891. Cf. also Beport of the Special Commission on Taxor 
tion, Boston, 1891. 

2 For some additional considerations, see infra, chap, viii., sec. iL 

t • 




triplicate taxes are perfectly reasonable so long as they fall 
equally on all. Taken together, they amount simply to a 
high rate for a single tax on the property. Double taxation, 
therefore, is not always wrong ; it is unjust only when one 
taxpayer is assessed twice while another in substantially 
the same class is assessed but once. It is the inequality of 
taxation that instinctively shocks us. But if all persons 
within the class are equally subjected to the burden, there 
can be no just complaint. 

It may be objected that people are not treated alike when 
they pay different taxes on the same income. Our opinion 
must depend, however, entirely on the attitude we take 
toward what is called ''differentiation" of taxation. If we 
maintain that all incomes should be taxed alike, irrespective 
of source, the objection would be valid. But modern theory 
has formulated the demand for a distinction between earned 
and unearned incomes, or between incomes from labor and 
incomes from property. Even so conservative a writer as 
John Stuart Mill was an adherent to this principle, which is 
at present quite generally admitted. This " differentiation " 
may be secured in two ways. A lower rate may be levied 
on labor incomes than on property incomes, as in the present 
North Carolina income tax, as in the former Virginia income 
tax, and as in Italy, in Holland and in some of the Australian 
colonies. But instead of making a difference in the rates, 
the same result may be reached by levying a uniform tax on 
all incomes and an additional tax on property, so that the 
income from property thus indirectly pays a higher rate. 
This is the case in Prussia and in some of the Swiss cantons, 
where the property tax and the income tax are levied on 
the same property. In other words, property income is 
put into a different class from labor income. It is taxed 
twice — once on property and once on income — because 
the seeming inequality is considered to be really a higher 
equality. It is double taxation, but it is not unjust double 

In some places the principle of differentiation has not yet 



been adopted. When the income tax is added to the prop- 
erty tax, the income from property already taxed is exempted, 
as in Massachusetts and in some of the Swiss cantons. Many 
difficulties have, however, arisen in the endeavor to distin- 
guish these property incomes. Thus in Massachusetts the 
question presented itself whether the income from a business 
could be taxed, if the property invested in the business was 
already taxed. In a leading case this practice was upheld 
on the ground that business profits are the result not only of 
the capital invested, but of the industry and skill of the 
capitalist.! Although this is no doubt true, as a matter 
of fact the interpretation of the Massachusetts law is unjust 
because incomes derived solely from land or from other in- 
vestments pay only once, while incomes derived from busi- 
ness enterprise pay twice, once on the property invested and 
again on the income derived. It is this inequality of the tax 
which renders the system crude and inequitable. This has 
been recognized in practice, and the custom has arisen for 
the assessor to allow six per cent on the capital invested in 
the business as representing the income from capital, and 
to levy the income tax only on the surplus profits. In the 
Swiss cantons similar provision is made by law and applies 
to incomes from all property, the amount exempted being 
four to five per cent of the capital. These figures are, 
indeed, entirely arbitrary, although they represent an inter- 
esting attempt to avoid double taxation.^ 

If, however, we accept the principle of differentiation, this 
attempt is to a certain extent unnecessary. The higher 
taxation of income from property as compared with income 
from other sources is theoretically defensible, although the 
exact amount of increase cannot be fixed a priori. It is 
only when the additional rate exceeds this amount that we 

1 Willcox vs. Middlesex, 103 Mass. 544. Cf. the interesting discussion in 
J. A. Lane, Address on Taxation with Special Beference to Taxation upon 
Income derived from Property subject to Taxation^ Boston Executive Busi- 
ness Association, 1891. Cf. also Beport of the Special Commission on Taxor 
tion^ Boston, 1891. 

2 For some additional considerations, see infra, chap, viii., sec. ii. 







can really speak of unjust double taxation. Up to that point 
it may indeed be double taxation, but it is not necessarily un- 
just taxation. We may, then, conclude that to tax property 
and also the income from property is not of itself inequi- 
table, provided that the income from all property is taxed. 
To single out a special class, as is done in Massachusetts, 
does indeed involve injustice. But if the tax applies to all 
property, the simultaneous taxation of property and income 
is not of itself reprehensible double taxation. Incomes from 
property should be taxed higher than incomes from labor. 

The second important case of double taxation is connected 
with the question of indebtedness. Shall debts be deducted 
from assessments for the property tax, or the interest on 
indebtedness from assessments for the income tax?^ Is it 
double taxation to tax the creditor on the debt, and the 
debtor on the whole property including the debt ? 

Put in this way the answer is plain. A man must be 
taxed upon what he has, not upon what he has not. What 
he owes to another is not really a part of his property. 
The one great reason why the countries of continental 
Europe are changing their system from taxation of product 
to taxation of income, is that under the former method, 
which disregards the personal position of the individual, 
no deduction is made for indebtedness ; whereas by the 
income tax such deduction is made, for net income can 
mean only the surplus above all necessary outlays — includ- 
ing interest on debts — connected with the acquisition of 
the revenue. Every income tax, whether in Europe or in 
America, therefore permits interest on indebtedness to be 

What is true of the income tax is. equally true, in theory, 
of the property tax. But the practical limitations to the 
application of the theory in the case of the latter, and more 
especially in the tax on personalty, are very considerable. 

1 The fullest study of this case is Heckel, Die Mnkommensteuer und die 
Sehuldzinsen, 1890. 

The unfortunate experience of the United States has already 
been discussed.^ 

There is, however, one special phase of the question 
which is of widespread interest. In the case of a tax on 
land or on real estate, what should be done with the amount 
of the mortgage? The problem of double taxation arises, 
as in several of the American states, when the borrower 
or mortgagor is assessed on the full value of his land, and 
the lender or mortgagee is also taxed on the amount of 
the mortgage debt. If A, the owner of a $100,000 farm, 
borrows $50,000 from B, the state thus taxes $150,000, when 
there is really only $100,000 of property ; and so far as B is 
able to shift his tax on A, the latter pays the taxes for both. 
On the other hand, if the mortgagor is allowed to deduct 
the value of the mortgage, and if the mortgage debt is not 
taxed at all to the mortgagee, the state loses a legitimate 
revenue. It now taxes A on $50,000 and does not tax B 
at all, thus getting a revenue from $50,000, when there is 
really $100,000 of property. In the one case we have 
double; in the other, we have inadequate taxation. 

What is the remedy? Two plans have been tried. 
According to the first the mortgagor is taxed on the full 
amount of the property, but the mortgagee is exempt. This 
method is based on the theory that as a result of the exemp- 
tion of mortgages capitalists will lend more readily and at 
a lower rate, and that the benefits of exemption will then 
be diffused throughout the community. This plan certainly 
is a great improvement upon the double taxation usually 
practised; but it might be claimed that a still more satis- 
factory adjustment of the difiiculty can be brought about. 
As has been elsewhere pointed out, in actual life the com- 
plete shifting of the tax from the mortgagee to the mortgagor 
may be prevented by economic friction.^ If B, the lender, 
is taxed on the mortgage, he will indeed try to shift the tax 
to the borrower ; but he may not always wholly succeed. So 

1 Supray pp. 34 et seq. 

2 See The Shifting and Incidence of Taxation (2d ed.), pp. 266-268. 









far as he does succeed, it is good policy to exempt the mort- 
gage, because the owner of the mortgaged estate can then 
get his loan more cheaply ; but so far as he does not succeed, 
it is unwise to exempt the mortgage. The theory of the 
property tax cannot permit a man whose wealth consists in 
mortgages to go scot-free, for his ability remains the same 
whether his property consists in mortgages or in other 
income-bearing investments. To the extent that the lender 
cannot shift the tax, the exemption of mortgages becomes, 
therefore, illogical and unjust, because the interest rate wiU 
not fall by the amount of the tax, and the lender will receive 
more benefit than the borrower. Thus while the exemption 
of mortgages is an advance, under certain conditions it would 
not be a complete solution of the difficulty. 

Under such conditions, theory would demand the exemp- 
tion of the mortgage debt, i,e, of the mortgagor on his 
mortgaged estate. His ability is really reduced by the 
amount of the mortgage, for the profits of his land go to 
pay the interest on his debt. To tax thus both lender and 
borrower is double taxation. The remedy, however, might 
be declared to consist in exempting not the lender, but the 
borrower ; not the credit of the mortgagee, but the liability 
of the mortgagor. Tax the lender on the amount of the 
mortgage and the borrower on the value of the property 
minus the mortgage. 

In order, however, to avoid the practical difficulties often 
engendered by the exemption of mortgage debts, it is interest- 
ing to observe the modifications adopted by several common- 
wealths, like California and Massachusetts, and also recently 
introduced in New Zealand.^ In these states the mortgagor 
can offset the amount of the mortgage debt. The mortgage, 
on the other hand, is taxable in the hands of the mortgagee, 
but it is treated as realty, not as personalty — that is, its %itu% 
does not follow the domicile of the mortgagee, but it is taxed 
in the locality where the mortgaged property lies. If the tax 
is paid by the mortgagor, he may recoup it from the mort- 

^ See irk^ra^ chap, x., sec. iL 

gagee. In Massachusetts, indeed, this provision is practi- 
cally void, because nearly all mortgages contain a clause 
requiring the mortgagor to pay taxes upon the mortgaged 
estate, and a further agreement to pay all taxes upon the 
debt in the event of the repeal of the law. The practical 
result, therefore, is virtually the same as if mortgages were 
exempt, and the borrower taxed on the total value of his 
land.^ In California all such agreements between mortgagor 
and mortgagee are void. Legal enactments, however, can- 
not prevent the operation of economic laws. As a matter of 
fact, the interest rate on mortgages rose as a consequence 
of the law, and it has even been claimed with some degree 
of truth that interest has risen by a slight amount over and 
above the tax, to compensate the lender for trouble and 
risk.^ It would seem then that after all there is not much 
to choose between the two methods — that of complete 
exemption of mortgages on the one hand, and on the other 
that of taxing the mortgage as realty, but deducting it from 
the value of the land. All things considered, therefore, it 
may be just as wise to adopt the simple expedient of exemp- 
tion of mortgages, as the more complicated method pur- 
sued in Massachusetts and California. But either plan is 
vastly preferable to the system which taxes the mortgagee 
on the mortgage, and the mortgagor on the full value of 
the land. 

In the above discussion we have treated primarily of 
individual indebtedness. The same question often arises in 
connection with corporate debts, especially in the shape of 

1 See the Beport of the Special Committee of the Boston Executive Business 
Association on Taxation, 1889, p. 31. For an investigation of the question as 
to how far the rate of interest has been affected, see Thomas Hills, Address 
on Taxation, delivered before the Boston Executive Business Association, 
1890, p. 20; and Nathan Matthews, Jr., *' Double Taxation of Mortgaged 
Real Estate,'* in Quarterly Journal of Economics, iv., p. 339. The latest 
discussion of the whole question is found in R. H. Dana, Double Taxation 
in Massachusetts. Published under the auspices of the Massachusetts Anti- 
Double- Taxation League, 1895, pp. 72-86. 

'^ See C. C. Plehn, "The Taxation of Mortgages in California," in The 
Yale Beview, viii., pp. 31-67. 









mortgage bonds. It has usually been overlooked that there 
is a decided distinction between individual and corporate 
property or income. In the case of individuals, to tax both 
the property and the amount of the mortgage debt is theo- 
retically unsound, because the individual's true taxable prop- 
erty consists in his surplus above indebtedness. The capital 
stock of a corporation, however, represents, in many cases, 
only a portion of the property, while the remainder is repre- 
sented by the bonded indebtedness. In the United States, 
for example, it is well known that railroads are built mainly 
on the proceeds of mortgage bonds. To exempt the mort- 
gage debt in the case of these corporations would thus be 
inequitable ; for only by taxing both capital stock and 
mortgage debt can the state reach the true faculty of the 
corporation. In the case of individuals, indebtedness dimin- 
ishes the capacity to pay taxes ; in the case of corporations, 
indebtedness often augments that capacity because it is 
incurred for the purpose of increasing the value of the prop- 
erty, or rather because it is not so much a real debt as a 
constituent part of the property.^ It is the correct recog- 
nition of this fact that has led to the introduction of the tax 
on corporate loans in many states, American and foreign. 

We come now to the third case of double taxation, which 
in the modern days of corporate industry has assumed much 
importance, — that of the double taxation of a corporation 
and of the investor in corporate securities. If we tax the 
corporation, shall we also tax the individual stockholder 
or bondholder? 

The great divergence of practice in America, as well as 
abroad, will be discussed in another chapter ; ^ but the 
economic theory is simple. If the tax — whether on income 
or on property — is general, and applies to all classes of cor- 

^ The great defect in the otherwise admirable study of Heckel, mentioned 
above, is the failure to distinguish between corporations and natural per- 
sons. He is indeed forced to the practical conclusion that corporations must 
be liable for the tax on mortgage debts, but his arguments axe weak and 
inconclusive ; c/. p. 182 of his work. 

* Infra, chap, viii., sec. v. 

porations and to other non-corporate investments as well, 
it is manifestly double taxation to assess the security holder 
as well as the corporation. The tax on the corporation 
diminishes his income from the corporate security ; an addi- 
tional tax on the security would involve double taxation of 
the same income or property. But if the tax is a special or 
exclusive tax instead of being a general tax, the matter is 
different. In that case the general doctrine of capitalization 
of taxation will apply, i If only one class of corporations 
is taxed, the purchaser of these corporate securities will 
escape taxation, because the amount of the tax is discounted 
in the depreciation of the security. For, let us suppose that 
a corporation previously untaxed has been paying five per 
cent dividends on its stock quoted at par. If a special tax 
of ten per cent be imposed on these dividends, the stock- 
holders will get only four and a half per cent. But since 
by the supposition other classes of corporations, or at all 
events other non-corporate investments, are not taxed, the 
price of the stock will fall to ninety. People who can get 
five per cent on their capital will not ordinarily consent to 
take four and a half per cent. The original holders of the 
stock will indeed lose, but the new purchasers will not be 
affected, because the tax is capitalized and leads to a deprecia- 
tion of the capital value of the stock. A dividend of four 
and a half dollars on stock costing ninety is as good as one 
of five dollars on stock costing a hundred. A tax levied 
only on corporate profits, or only on some special classes of 
corporations, does not affect any one except those who become 
stockholders before the imposition of the tax. To tax the 
new purchaser on his security would not in such a case 
involve unjust double taxation. 

There is one other condition under which the simulta- 
neous taxation of the corporation and the security holder is 
not unjust. In the case of a stockholder we have seen that 
if the tax is general, it is unjust to tax both the corporation 
and the stockholder. In the case of a bondholder this 

1 See The Shifting and Incidence of Taxation (2d ed.), pp. 181-186. 







would also ordinarily be true, when the income tax on the 
corporation is, for instance, deducted from the interest of the 
bondholder as well as from the dividends of the stockholder. 
In some cases, however, it happens that the corporation 
is willing to assume the tax as a whole, and to count the 
tax among its fixed charges, declaring the coupons free from 
tax. In such a case it is really the stockholders who pay ; 
for the interest on the bonds is fixed, and what is not 
deducted from the interest must be paid out of the surplus 
earnings which would otherwise ultimately go to the stock- 
holders. The bondholders are not reached at all by such 
a tax, except in the very indirect way that they may be 
exposed to an ultimate diminution in the security of their 
lien. But the tax as such does not strike them at all; 
their property or income in the corporate bonds goes scot- 
free. An additional tax upon the bondholder would thus 
really not involve any injustice to them. Here, as well as 
in the preceding case, a study of the real incidence of the 
tax becomes important. What L«» apparently double taxa- 
tion may turn out not to be such. 

We may, therefore, sum up by saying that in so far as 
the tax is general, it is manifestly unjust to tax both cor- 
poration and security holder, but that when the tax is partial 
or when the corporation assumes the tax as a whole, the 
additional taxation of stockholder or of bondholder is not 
necessarily either double taxation or inequitable taxation. 

There remains the fourth and final form of double taxa- 
tion by the same jurisdiction, which has given rise to con- 
siderable difficulty. This applies especially to corporations. 
The question is: Is it permissible to tax the corporation 
on its property and again on its capital stock ? 

The answer from the economic standpoint is simple. The 
exact relations between capital stock and property are dis- 
cussed more fully below.^ But for the purposes of this 
argument it is clear that corporate property is at all events 
one of the elements that contribute to the value of the capital 

1 Infray chap, viii., sec. iii. 



stock. If this be true, to tax the corporation on its property, 
and then to levy an additional tax on its stock, is 'pro tanto 
duplicate taxation of an unjust character. If other persons 
are taxed only once on property, corporations should not 
be taxed again on what is at all events a part of their 

This concludes the discussion of the important cases 
of double taxation arising from the actions of the same tax 
jurisdiction. Equally important are the cases due to the 
conflicts of jurisdiction between independent taxing authori- 
ties. These we now proceed to take up. 

II. Double Taxation by Competing Authorities, 

The problems included under this head are essentially of 
modern growth. Until very recently they have received 
little attention, for three reasons. In the first place, the inter- 
national relations of commerce and industry were compara- 
tively unimportant; and even within the same state, business 
methods and business investments were far more localized and 
less complicated. Secondly, the stranger in primitive society 
was originally an enemy. The survival of this idea in the 
conception that the foreigner, as such, is an especially 
desirable subject of taxation has only slowly given way to 
the broader conceptions of the modern age. Thirdly and 
chiefly, in former times but little attention was given to the 
question of justice in taxation. Even when the general 
problem was considered, the details of double taxation were 
regarded as insignificant. But nowadays the question is 
forging to the front. 

It need not be pointed out that amid the complexities of 
modern industrial life equality of taxation cannot be attained 
without a careful consideration of these problems. To-day 
a man may live in one state, may own property in a second 
and may carry on business in a third. He may die in one 
place and leave all his property in another. He may spend 
all his income in one town and may derive that income 

I I 




from property -or business in another town. He may 
carry on business in several states, or if he has invested in 
corporate securities, the corporation may be the creature of 
another state and may be situated or do business in a third. 
All these cases may affect foreign states or separate com- 
monwealths of the same federal state, or separate cities 
or counties of the same commonwealth. The possible entan- 
glements are well-nigh innumerable.^ 

The question thus arises : Where shall a man be taxed ? 
Whatever principle we lay down, it is plain that, if every 
state or every tax authority followed the same principle, it 
would be easy to avoid double taxation. The complications 
arise from the fact that one state follows one principle, and 
that another state follows an opposite or conflicting principle. 
Let us discuss the different principles that have actually been 

The oldest principle is that of citizenship or political alle- 
giance. Originally only the citizen of the state or the burgess 
of the town had any obligation to the government under 
which he lived. But it soon happened that commercial rela- 
tions developed, until in modern times the actual population 
of any state or community is by no means limited to citizens. 
To tax only the citizen and to exempt the stranger, whether 
the stranger be from another state or only from another city, 
would plainly be inadmissible. Political allegiance in this 
sense is nowhere to-day made the basis of taxation. Yet when 
political allegiance involves a positive rather than a negative 
attitude, it is still followed, at all events in international rela- 
tions. While the stranger is not exempted, the citizen living 

1 The question has naturally attracted more attention in federal states. 
We find almost no discussion of the problems in French or English books on 
finance. It is only lately that the matter has been seriously discussed in the 
federal states of Germany and Switzeriand. See especially Schanz, " Die Ort 
der Besteuening," in Finanzarchiv, vol. ix. (1892). This was written two 
years after my discussion of the practical problems in the essay on the Taxa- 
tion of Corporations, reproduced in this volume. It is gratifying to observe 
that our conclusions are almost everywhere in accord. For the discussion of 
the principles, Schanz's essay is very helpful. 



abroad is frequently held responsible to his country. Political 
fealty cannot be so easily abandoned; political rights involve 
political duties. Among them is certainly the duty to pay 

In modern times, however, the force of political allegiance 
has been considerably weakened. The political ties of a non- 
resident to the mother country may often be merely nominal. 
His life may be spent abroad and his real interests may be 
indissolubly bound up with his new home, while his loyalty 
to the old country may have almost completely disappeared. 
In many cases, indeed, the new home will also become the 
place of a new political allegiance. But it is well known 
that in some countries the political bond cannot be dis- 
solved even by permanent emigration ; while it frequently 
happens that the immigrant has no desire to ally himself 
politically with what is socially and commercially his real 
home. In the modern age of the international migration of 
persons as well as of capital, political allegiance no longer 
forms an adequate test of individual fiscal obligation. It is 
fast breaking down in practice, and it is clearly insufficient 
in theory. 

The second principle that may be followed is that of 
mere temporary residence ; every one who happens to be in 
the town or state may be taxable there. This, however, is 
also inadequate. If a traveller chances to spend a week in 
a town just when the tax collector comes around, there is 
no good reason why he should be assessed on his whole 
property by this particular town ; the relations between him 
and the government are too slight. Moreover, as he goes 
from place to place, he may be taxable in each place or in 
none. Temporary residence is plainly inadmissible as a test. 

The third principle is that of domicile or permanent resi- 
dence. This is a far more defensible basis, and it has many 
arguments in its favor. Those who are permanently resi- 
dent in a place ought undoubtedly to contribute to its 
expenses. But the principle is not perfectly satisfactory. 
For, in the first place, a large part of the property in the 


r (, 






I 1 


town may be owned by outsiders : if the government were 
to depend only on the permanent residents, it would lose a 
portion of its rightful dues. In the second place, most of 
the revenues of the resident population may be derived from 
outside sources, as from business conducted in other states. 
In this case, the home government would be gaining at the 
expense of its neighbor. Thirdly, property owners like the 
absentee landlords of Ireland or the absentee stockholders 
of the railways in the western states of America cannot be 
declared devoid of all obligation to the place whence their 
profits are derived. Domicile, therefore, cannot be the exclu- 
sive consideration. 

The fourth principle is that of the location of the property. 
This again is undoubtedly legitimate to a certain extent. 
For a man who owns property has always been considered to 
have such close relations with the government of the town 
or county where his property is situated, as to be under a 
very decided obligation to support it. But for reasons just 
the reverse of those mentioned in the preceding case, the loca- 
tion of the property clearly cannot be the only test. Perma- 
nent residents of means owe some duty to the place where 
they live, even if their property is situated elsewhere. A 
New Yorker who has invested even his whole property abroad 
cannot be said to be entirely without any duty to support 
the New York or American government. 

We see then that each of the last three principles — tem- 
porary residence, domicile and location of property — has a 
certain, but none a complete justification. There is, however, 
one final principle, toward which all modern governments are 
tending, which reconciles the three preceding tests. This 
is the principle of economic interest or economic allegiance, 
as against the antiquated doctrine of political allegiance. 
Every man may be taxed by competing authorities according 
to his economic interests under each authority. The ideal 
solution is that the individual's whole faculty should be 
taxed; but that it should be taxed only once, and that it 
should be divided among the tax districts according to his 



relative interests in each. The individual has certain economic 
interests in the place in which he happens to live, in the 
place of his domicile, and in the place or places where his 
property is situated or from which his income is derived. If 
he makes money in one place, he spends it in another. 

It has been pointed out elsewhere that the conception of 
faculty in taxation involves two considerations, — those con- 
nected with acquisition or production, and those connected 
with outlay or consumption. ^ In apportioning the total 
fiscal obligation of the individual it is therefore necessary to 
ascertain from what place or places his earnings are derived, 
and then to observe in what place or places they are ex- 
pended. Only in this way can his real economic interests 
be located. 

From this point of view the solution of the problem would 
be easy. Let the state or states from which earnings are 
received divide among themselves the taxes on production, 
that is, the taxes levied according to property or income or 
business or any other measure of productive capacity; let 
the state where the individual lives and where the earn- 
ings are spent levy taxes on consumption, whether direct or 

This plan, however, involves one serious difficulty. Ex- 
penditure, for obvious reasons, is no longer considered so 
satisfactory a basis of taxation as revenue. And although 
taxes on consumption are still largely employed and are 
defensible for the central authorities, their use for local or 
commonwealth purposes tends everywhere to be restricted to 
narrow limits. Where taxes on consumption are abandoned, 
it becomes necessary to devise some compromise in appor- 
tioning the taxes on production. Some writers have sug- 
gested that three-quarters of the tax on property or business 
or earnings should go to the state of domicile, while others 
have proposed an equal division. It may be conceded that 
the exact division is necessarily arbitrary; but even an arbi- 
trary division is better than no division at all. Whatever 
1 See my work on Progressive Taxation in Theory and Practice, p. 191. 

li' ( 




figures we adopt, it is none the less clear that the principle 
of economic interest will help us out of many a difficulty. 

In international relations we have scarcely begun to apply 
the doctrine ; in fact, we still cling in part to the prin- 
ciple of political allegiance. The result is much unjust 
double taxation. In internal relations, as in the federal 
states of America, Germany and Switzerland, more progress 
has been made. In the United States, as to a large extent 
everywhere else, the rule of situs has been applied to real 
estate. This is taxed where it is situated. But in the case 
of personalty or business most countries waver between the 
doctrines of situs and of domicile. In America, for example, 
while most of the states tax personal property actually located 
within their bounds,^ we find in many places the legal princi- 
ple, which had its origin in entirely different reasons, that 
personalty follows the owner — mobilia personam sequuntur,^ 
Accordingly if the owner is a non-resident, his personal 
property will be taxed twice — once by the state where it is 
located, and again by the state of his domicile. 

In the United States a few commonwealths have indeed 
provided by statute for the exemption of a resident's per- 
sonalty, if permanently located and taxed in another state. 
Such is now the law in Alabama, California, Connecticut, 
Indiana, Louisiana, Maine, Missouri, New Jersey, Ohio, 
Rhode Island, South CaroHna, Vermont and West Virginia.* 
The same rule has been extended by judicial interpretation 
to lUinois, Kansas, Missouri, New York, North Carolina and 

1 That this is permissible is recognized in Coe vs. Errol, 116 U. S. 517. 

« Or, as it is sometimes put, mobilia inhaerent ossibus domini. Cf. in 
general, Story, Conflict of Laws, §§ 362, 383, 560. The original use made of 
this principle in America may be seen in Catlin vs. Hall, 21 Vt. 162. 

8 Ala. Code, § 463 ; Cal. Code, § 3638 ; Conn. Gen. Stat., sees. 3828-3830 
(applies to property actually mvested in merchandizmg or manufacturing); 
Ind. Rev. Stat., sec. 6287 ; La. Act July 9. 1890, No. 106, § 1 ; Me. Rev. 
Stat., tit. i., sec. 14, § 10 ; Mo. Rev. Stat., §§ 7603, 7608, 7531 ; N. J. Rev. 
Stat. [1877], p. 1151 ; O. Rev. Stat. (1892), § 2735 ; R. I. Pub. Stat., chap. 
42, sec. 9 (appUes only to machinery, machine tools, stock in trade, mer- 
chandise, lumber, coal and stock m livery stables) ; S. C. Rev. Stat., chap. 
12, sec. 1 ; Vt. Rev. Laws, sec. 270 ; W. Va. Code, chap. 29, sec. 48. 



Ohio.i In other commonwealths the rule is applied only 
in part. Thus in Arkansas, South Carolina and Virginia a 
similar exemption is made for all personalty except in so 
far as money, credits or investments in business are con- 
cerned.2 i^ Delaware only so much of the personalty 
is exempt as consists of non-productive securities of 
other commonwealths.^ Finally, in Michigan all the per- 
sonalty of a resident is taxable except that which is in- 
vested in another commonwealth.* But in most of the 
commonwealths the legal fiction still prevails, and the indi- 
vidual is taxed on all his personalty irrespective of its 
location. The obvious result is double taxation of a nature 
which cannot possibly be justified. 

According to the doctrine of economic interest, the solu- 
tion is plain. A large part of the tax should go to the place 
where the property lies or whence the earnings are derived ; 
a smaller share to the domicile of the owner. But this pre- 
supposes uniform action on the part of the conflicting authori- 
ties. As long as no interstate or intercommunal agreements 
are made, the simplest plan would be for the state of location 
to tax the tangible property, and the state of residence to tax 
the intangible property or income therefrom. 

1 Mills m. Thornton, 26 111. 300 (1861) ; Fisher vs. Commissioners of 
Rush County, 19 Kan. 414 ; State vs. St. Louis County, 47 Mo. 594 (1871) ; 
State ex. rel. Dunnica vs. County Court, 69 Mo. 454 (1879) ; Valle vs. Ziegler, 
84 Mo. 214 (1882) ; People ex rel. Hoyt vs. Commissioners, 23 N. Y. 224 
(1861), which decided that shares of foreign corporations are exempt from 
local taxation in New York because they have no situs in the state ; People 
ex rel. Trowbridge vs. Commissioners, 4 Hun. 596 (1876) ; 2 Jones Eq. 
Rep. 63, where the principle mobilia personam sequuntur is declared to 
be " a fiction which has no application to questions of revenue " ; Carrier vs. 
Gordon, 21 Ohio 606 (1863). Cf. for the practice and cases up to 1871, 
(First) Beport of the (New York) Commissioners to revise the Laws for the 
Assessment and Collection of Taxes (1871), pp. 130-147 ; and for a more 
systematic discussion of the later cases. Walker, Double Taxation in the 
United States, chap. vi. 

2 Ark., Mansfield's Digest, sec. 6048; S. C. Gen. Stat., chap. 11, sec. 149; 
Va. Code, sec. 492. 

8 Del. Laws 1879, chap. 2. 

* Mich. Laws 1885, no. 163, sec. 2. 









This conclusion, however, is complicated by several con- 
siderations. In the first place, the intangible property may 
consist of corporate securities, while the corporation may 
already be taxed in the state where it is situated; secondly, 
the intangible property may consist of a mortgage on real 
estate abroad, which in that state is treated as realty and 
already taxed ; and finally, the American experience with 
the taxation of intangible personalty in general is very 
sad. For practical purposes, therefore, the conclusion 
would be; Tax only realty and tangible personalty, and 
tax this in the state of location. AVhen the era of interstate 
agreements is finally reached, it will be feasible to attempt 
the more ideal plan of taxing the entire property or income, 
dividing the proceeds among the states of location and 
domicile according to a pre-established proportion, and in 
harmony with the doctrine of economic interest. In the 
interval it may be possible to reach intangible personalty 
through some form of national taxation, the general gov- 
ernment then to apportion the proceeds to the states. But 
under the recent income tax decision it is doubtful whether 
this can be done in the United States without an amendment 
to the constitution. 

It will be well now to take up in turn the most important 
cases of double taxation by different jurisdictions. As the 
problems apply to interstate or inter-municipal complications 
as well as to difficulties between foreign countries, the word 
alien must be understood to include persons from another 
town or commonwealth as well as from a foreign country. 
And since the questions are precisely the same when applied 
to corporate business as when applied to individuals or indi- 
vidual business, the term citizen must be understood to mean 
legal as well as natural persons. Let us proceed to discuss 
the cases in order. 

1. Shall a re%ident citizen he taxed on his property abroad 
or on his income from abroad f 

In international relations the principle of political alle- 



giance is still largely followed. Thus in England, and many 
other countries, as formerly and again more recently in the 
United States, a resident citizen is subject to the income 
tax on his entire income, whether received abroad or not. 
If, as is usually the case, the income is again taxed where it 
is earned, we have a glaring case of double taxation. It is 
only in the inheritance tax that the principle of citizenship 
has begun to be weakened, and that the doctrine of location 
is applied to a small extent. 

In state and local taxation the principle of economic inter- 
est has made more headway. In the United States, as well 
as in several of the German commonwealths and Swiss can- 
tons, the rule of situs is generally applied to real estate and 
to tangible personalty and business ; the rule of domicile to 
other forms of property or revenue. In Germany the taxes 
on business, salaries and pensions, as well as on land, must be 
assessed according to location. But all these rules are only 
an approximation to the ideally correct principle. 

In the case of business — whether individual or corporate 
— America is as yet in the rear of some of the European 
states. In purely local taxation the American commonwealths 
generally levy the whole tax at the place of the principal office, 
although most of the business profits may be earned in other 
places within the state. In the case of corporation taxes, 
however, a few states now pursue the more sensible policy 
of taxing the domestic corporation on that part of its capi- 
tal or earnings only which is employed or received within 
the state. This is perhaps as near as we can get at the pre- 
sent time to any practicable solution. 

2. Shall a non-resident citizen be taxed on his property 
abroad or on his income from abroad f 

This seems to involve a great stretching of the principle of 
political allegiance ; yet we find it to be the practice at the 
present day in international relations. For instance, in the 
national income tax of 1894 in the United States, an Amer- 
ican was taxed on his whole income, whether he resided in 
America or abroad. Some states, however, like England and 



i •■ 





i I 



Austria, do not carry the doctrine of citizenship to this 
point, — they make no attempt to tax a non-resident citizen 
on his foreign income. Other countries cling only nominally 
to the principle, by providing for a remission of taxes in case 
the citizen is actually taxed abroad. And still others, like 
Russia, compromise the matter by exempting the citizen after 
he has lived abroad two years. 

In state and local taxation, the tendency is far more evi- 
dent to settle the matter according to the doctrine of economic 
interests. According to this principle, there is no imagina- 
ble reason why a non-resident citizen should be taxed for his 
property abroad. Moreover, neither the principle of location 
nor that of domicile has any application. Even if it were 
desirable to levy such a tax, it is difficult to see how the obli- 
gation could be enforced, unless the non-resident happened 
also to own some real estate at home. And even then, the 
home property would scarcely be liable for the taxes of the 
non-resident on his foreign income. 

3. Shall a non-resident citizen be taxed on Mb property at 
home or on his income earned at home f 

Here, again, the ideal solution would be, as in the first 
case, that the home government should levy not the entire 
tax, but only the greater part, leaving a small share to the 
foreign government. But in default of such an arrange- 
ment, the most practicable method is for the home govern- 
ment to levy the whole tax, and to trust to the foreign 
government to avoid double taxation. 

As a matter of fact, this is the practice in international 
relations. Almost everywhere the income earned at home is 
taxable even though the citizen lives abroad ; for in this case 
the principles of citizenship (or political allegiance) and of 
location come together. In state and local taxation, how- 
ever, the practice is considerably modified by the principle 
of domicile, as applied to certain forms of personalty or 
income. We have seen the practice in America in regard 
to property; and in the few cases of income taxation, the 
custom is still further restricted. In Massachusetts and 

t^. '^ 

* I 



Virginia, for instance, the income tax applies only to resi- 

4. Shall a resident alien he taxed on his property or income 
in the state of residence ? 

This, together with the two following cases, is the reverse 
of the preceding cases. It is indeed evident that the alien 
should not be treated with greater favor than the citizen. 
Accordingly, if the non-resident citizen be taxed, the resident 
alien should certainly not be exempt in so far as the same 
property is concerned. In international relations most states 
have here abandoned the doctrine of political allegiance. 
There is no reason why it should not be abandoned, for the 
principles of domicile and of location here come together, 
and, combined, far outweigh that of citizenship. In state 
and local taxation the matter is somewhat complicated 
by a survival of the old jealousy of strangers. Not only is 
the resident alien taxed, but he is sometimes taxed at a 
higher rate than the citizen, or is taxed when the citizen is 
exempt. We find this, for instance, in the United States 
where a higher rate is imposed on certain foreign companies 
(«.e. resident aliens). A way out of the difficulty has been 
outlined in the so-called reciprocal laws, according to which 
a state taxes resident aliens in the same way that its citizens 
resident in the foreign state are there taxed. ^ The whole- 
some dread of reprisals is often sufficient to prevent unjust 
double taxation. 

6. Shall a resident alien he taxed on his property abroad or 
on his income earned abroad f 

This case is not quite so simple. We have seen that if we 
abandon the principle of political allegiance and substitute 
that of economic interest, a large part of the tax should be 
paid to the country where the property is situated, and only 
a small part to the country of domicile. But where this ideal 
cannot be attained, we found it simpler to apply, as far as 
possible, the doctrine of location. 

In international relations it is to be noticed that almost all 



^ See infra^ chap, vi., sec. ii., § 2. 



it !l 


i\ "i 


I ' 






states have abandoned the doctrine of political allegiance 
and have substituted that of domicile. That is, in England 
and in most of the German states residents are liable to the 
income tax on their whole income, whether they are aliens or 
citizens, and whether the income is derived from the home 
country or from abroad. This was also the case in the 
recent income tax in the United States. To put it in an- 
other way: when the principle of citizenship is advantageous 
to a state, it is applied ; when it is disadvantageous, it is not 
applied. Only a few countries exempt the foreign property 
or income of a resident alien. If the foreign state applies 
the principle of citizenship and the home state the principle 
of domicile, as is frequently the case, it is not to be wondered 
at that there should be so much double taxation. 

In state and local relations the doctrine of economic inter- 
ests has made considerably more headway. Little attention 
is paid to the question whether the resident is a citizen or 
a foreigner, or whether we are dealing with a foreign or 
a domestic business or corporation. The problem is solved 
very much as in the case of the resident citizen. 

6. Shall a non-resident alien be taxed on his property or 
income in the state? 

In international relations, here again, the principle of polit- 
ical allegiance has been abandoned, and that of location has 
been substituted. It is the almost universal custom for 
states to levy a tax on incomes arising within their borders, 
irrespective of the question whether the recipient lives abroad 
or is a foreigner. The recent income tax in the United States 
formed no exception. The difficulty arises in the practical 
enforcement of the law, where the property or the source of 
income does not consist of tangible property. 

In state and local taxation the problem is comparatively 
simple as regards tangible property, which is taxed where 
it is located. But in the case of intangible property, not 
capable of a sitibs^ the question arises whether it should 
follow the domicile of the owner, and to that extent be 
beyond the jurisdiction of the taxing power; or whether 

I I 



the intangible property may not be declared to have at 
least an economic situs in connection with the tangible 
property on which it is based or which it represents. In 
so far as corporate securities are concerned, this question 
will be treated in a subsequent chapter. In the case of 
earnings from business, since there must generally be an 
office or an agent in the state through which the earnings 
are received, the alien (or foreign business or corporation) 
is to that extent no longer a non-resident. But even here 
the principle of economic interest is clearly applicable. 

From the above review, it is evident that the question 
where a tax ought to be imposed involves a rather simple 
theoretical problem and many very difficult practical prob- 
lems. It is the same with almost every question of taxation. 
As a matter of principle, it is easy to decide that a man should 
be taxed according to his faculty; as a matter of practice, 
it is not so easy to apply the principle of faculty in the 
actual tax system. So we have found that in the case of 
double taxation due to conflicts of jurisdiction the ideal 
principle is that of economic interest or economic alle- 
giance, modified in a few cases by that of political allegiance. 
The difficulty arises when we attempt to embody this prin- 
ciple in equitable assessments. 

If we observe the legislation of the most progressive 
countries, we find, especially as regards internal or federal 
relations, a distinct tendency toward the realization of this 
principle. Economic interests are divided between the 
places of location, of domicile and of residence. However 
differently various states may measure the relative impor- 
tance of each, there is a steady progress toward the recog- 
nition of the principle. In the case of real estate the solution 
is obvious ; in the cases of intangible personalty, of business 
earnings and of interest from loans the problems are far 
more complicated. To work out the solution ^ for each kind 

1 For a study of the practical problem as applied to the corporation tax, 
see infra, chapter viu., sec. iv. Cf. in general the monograph of Walker. 




I 4 



of tax would take us too far afield. But it cannot be too 
strongly emphasized that in federal states no satisfactory 
system of taxation can be attained until two conditions are 
realized. We need, in the first place, a substantial interstate 
agreement to pursue the same general policy in cases of 
conflicting jurisdiction ; and we need, in the second place, 
a virtual acceptance of the doctrine of economic interests 
in taxation. When once these conditions exist, it will make 
comparatively little difference how the principle is inter- 
preted. For if it is everywhere interpreted in the same 
spirit, there can be little double taxation; and with increased 
experience we may expect to find closer and closer approxi- 
mation to strict justice in the application of the principle. 
In international relations we are still very far removed from 
the ideal; in internal taxation — federal, state and local — 
the drift is unmistakably in the right direction. 










The inheritance tax,i as now understood in most countries, 
is essentially the product of modern democracy. It was, 
indeed, not unknown to antiquity. In Rome the vicesima 
hereditatium^ a tax of a twentieth part of inheritances, was 
imposed at the beginning of the empire to pay the pensions 
of the veteran soldiers. In the middle ages the relief and 
the heriot were exacted by the overlord in return for the 
privilege of succeeding to the possession of property. But 
while the influence of the mediaeval idea is still to be seen 
in a few of the continental countries where the payment 
is regarded as made for the privilege of succession, the tax 
is almost everywhere of independent and comparatively 
recent origin. In Holland, in France and even in England, 
parts of the existing inheritance taxes are survivals of the 
system of charges on transfers and transactions. In many 
English-speaking states the term probate duties is still 
employed, signifying that the original conception was a 
charge for the privilege of having the will probated ; and 
in some places the various forms of the inheritance tax are 

1 The term inheritance tax is here used in its popular sense, as a tax on 
the devolution of property, whether real or personal, whether by will or 
by intestacy. By all means the ablest, as it is the only complete, discussion 
of this topic from the points of view of economics, law and history (Ameri- 
can as well as European), is to be found in the doctor's dissertation by on© 
of my former students. See The Inheritance Tax, by Max West, sometime 
University Fellow in Fmance, in Columbia University Studies in History, 
Economics and Public Law, vol. iv., no. 2, 1893. Less complete are: von 
Scheel, Erbschaftssteuern und Erhschaftsreform; Eschenbach, Erhrechts- 
reform und Erbschaftssteuer ; Krttger, Die Erbschaftssteuer ; Bacher, Die 
deutschen Erbschafts- und Schenkungssteuern. 







ii %■ 






included among the stamp taxes, or taxes on transactions. 
But in most countries the older idea has been abandoned, 
and has been supplanted by the view that the tax must be 
regarded rather as a charge on the recipient of the inheri- 
tance than on the transaction itself. The inheritance tax 
is to-day found primarily in democracies like those of Eng- 
land, Switzerland, Australia and America; and in other 
countries its development has gone hand in hand with the 
spread of democratic ideas. 

It may be asked why democracy should favor the inheri- 
tance tax? The answer depends upon the point of view 
from which we regard democratic tendencies. If we say, 
as some believe, that the trend of democracy is necessarily 
toward socialism, the answer is plain: the inheritance tax is 
imposed because democracy is jealous of large fortunes. 
But if, on the other hand, we hold with the less pessimistic 
critics that modern democracies are endeavoring simply to do 
away with the abuses that have come down to us from the 
aristocracies of the past, we may claim that the inheritance 
tax is only a means of securing equality in taxation and of 
realizing the principle of ability to pay. Because the tax has 
frequently been urged by those who are opposed to large fort- 
unes, it has usually been overlooked that it may be defended 
on purely economic grounds as in complete harmony with^ 
the general principles of equitable taxation. 

The earliest argument^ for the inheritance tax had its 
origin in the plan to abolish intestate inheritance ; that is, 
to provide, when there was no will, for the devolution of 
the property to the state. This scheme was propounded in 
the celebrated essay of Bentham, entitled " Supply without 
Burden." a 

1 The fullest account of the arguments is to be found in the article by Dr. 
Max West, "The Theory of the Inheritance Tax,'* :Polii%cal Science Quar- 
terly, viii., p. 426 (1893). 

» The full title is " Supply without Burden, or Escheat vice Taxation, 
being a proposal for a saving of taxes by an extension of the Law of Escheat, 
including strictures on Collateral Succession comprised in the Budget of 7th 
December, 1795." In Collected Works, Bowring's edition, ii., p. 685. 




The title of the essay is explained in the following problem: 

" What is that mode of supply of which the twentieth part 
is a tax, and that a heavy one, while the whole would be no 
tax, and would not be felt by anybody ? " 

The solution of the problem, according to Bentham, lay in 
the abolition of intestate succession except in the case of 
immediate relatives. To this he added the limitation of the 
power of bequest of testators without direct heirs. The old 
principle of escheat was to be extended to include the inher- 
itances or bequests then going to collateral relatives. But 
Bentham claimed, further, that the state should have an equal 
share in the sums going with or without a will to such close 
relatives as grandparents, uncles and aunts, and perhaps 
nephews and nieces, as well as a reversionary interest in 
the succession of childless direct heirs without prospect of 

Bentham held that this was not a tax, and that precisely 
in this fact lay its chief advantage, — that of " unburthen- 
someness," or, as we would say, freedom from oppressiveness. 
According to the general principles of human nature, said 
he, a man is led in the case of a tax on successions to look 
upon the whole of what is left to him as his own, of which he 
is then called upon to give up a part. But if under the law 
regulating successions he knows that nothing, or only a small 
share, is due him, Bentham claimed that he would suffer no 
hardship. " For hardship depends on disappointment ; dis- 
appointment upon expectation, and if the law of succession 
leaves him nothing, he will not expect anjrthing."* 

1 The plan is defined to be " the appropriating to the use of the public all 
vacant successions, property of every denomination included, on the failure 
of near relations, will or no will, subject only to the power of bequest, in 
respect of the half of whatever property would be at present subject to that 

2 As he puts it in another place : " The riddle begins to solve itself: a 
part taken and a sense of burthen left ; the whole taken and no such 
effect produced ; the effect of a part, greater than the effect of a whole ; 
the old Greek paradox verified, the part greater than the whole. Suffer a 
mass of property in which a man has an interest to get into his hands, his 
expectation, his imagination, his attention at least fastens upon the whole. 






1 1 









Exaggerated as Bentham's distinction undoubtedly is, it 
contains a kernel of truth; namely, that there is no such thing 
as a natural right of inheritance, and that the extension of 
intestate succession to collateral relatives is under existing 
social conditions defensible only to a very limited extent. 
Whatever may have been the original family theory of 
property, it may be argued with some force that the bonds 
of the wider patriarchal family life have been considerably 
loosened in modern times, and that the family consciousness 
extends nowadays only to the nearest relatives. 

While Bentham looked upon the matter primarily from the 
point of view of escheat, it was but a step to extend the argu- 
ment, and to say, as many writers now do, that, since it is ex- 
ceedingly difficult to draw a sharp line where the family 
consciousness ends, it is more just and more practicable for 
the state to take away a small part from direct relatives and 
an increasingly larger sum from the more remote relatives. 
The tax, in other words, would be graduated according to the 
degree of relationship. What was originally nothing but an 
extension of escheat, thus grew into the idea of a graduated 
collateral inheritance tax. Even Bentham himself, although 
protesting against the use of the word tax, virtually advo- 
cated a graduated tax when, as we have seen, he proposed 
the exemption of direct heirs ; the confiscation of fifty per 
cent from grandparents, uncles and aunts; and the seizure 
of the whole in case of intestacy. Thus the extension-of- 
escheat argument, which was meant originally to apply only 
to intestacy, has been made to include also a limitation of - 
the power of bequest. 

A supposed variation of this line of reasoning is seen in 
what is called the theory of state co-heirship. It originated 
with Bluntschli, who used the expression staatUches Miterh- 

Take from him afterward a part . . . the parting with it cannot but excite 

somethmg of the sensation of a loss Take from him now (I should 

not say take), but keep from him the whole, so keeping it from him that 
there shall never have been a time when he expected to receive it ; aU 
hardship, all suffering, is out of the case." 



recht, and has found its way into some recent treatises. 
Sometimes Bentham is cited as the originator of the doctrine, 
but this is a mistake. As Dr. West so well puts it : — 

Bentham's plan was to abolish intestate inheritance except 
between immediate relatives, to restrict the power of bequest of 
testators having no direct heirs, and to give the state a part of 
the property of decedents in certain cases. He called the system 
which he proposed an extension of escheat, and based it not upon 
any right of inheritance in the state, but upon the absence of any 
reason for the operation of intestate inheritance between individuals 
not closely related. It is therefore a mistake to call Bentham a rep- 
resentative of the theory of state co-heirship. But later writers 
have combined with his argument the thought that the state should 
inherit property from individuals because of what it does for them 
during their lives. The state is sometimes represented as a larger 
family ; according to Umpf enbach, the bond of kinship between 
distant relatives loses itself in the whole nation, which therefore 
inherits the property of individuals as the family inherits the 
property of its members. Such expressions as these, however, 
must be regarded as metaphorical rather than scientific. The 
state may acquire property by escheat, but not by inheritance. 
Inheritance implies kinship, and the modern state is not a genetic 
association. The representation of the state as co-heir is either a 
mere figure of speech (and as such it is as old as Pliny), or else 
it results from a confusion of inheritance and escheat. Inheri- 
tance is not a matter of public law ; it is for private law to pre- 
scribe how far inheritance shall be permitted between individuals, 
and for public law to ordain that where inheritance ends escheat 
shall begin.^ 

We now come to the second theory, which may be called 
the socialistic or diffusion-of-wealth theory. It is based 
upon the doctrine that it is the function of government to 
use the power of taxation as an engine of social reparation 
in checking the growth of large fortunes and in bringing 
about a more equal distribution of wealth. 

In its origin this theory was not socialistic. John Stuart 
Mill accepted Bentham's reasoning, but developed it. Since 

1 FolUical Science (Quarterly, viii., p. 436, 
















he did not consider the right of inheritance as necessarily 
involved in the private ownership of property, he desired to 
extend the abolition of intestate succession to direct heirs, as 
well as to collateral relatives. Moreover, even in the case 
of a will, no one, he thought, was justified in demanding 
more than a fair competence. His plan was as follows : — 

Freedom of bequest as the general rule, but limited by two 
things ; first, that if there are descendants, who, being unable to 
provide for themselves, would become burthensome to the state, 
the equivalent of whatever the state would accord to them should 
be reserved from the property for their benefit: and secondly, 
that no one person should be permitted to acquire by inheritance 
more than the amount of a moderate independence. In case of 
intestacy, the whole property to escheat to the state: which 
should be bound to make a just and reasonable provision for 
descendants, that is, such a provision as the parent or ancestor 
ought to have made, their circumstances, capacities, and mode of 
bringing up being considered* 

This argument is not necessarily socialistic ; but it is per- 
haps open to question on other grounds. It may be regarded 
as opposed to the family theory of property, which even in its 
narrower sense, assumes that as a man acquires property 
largely in order to leave it to his children, for whom he 
ought to provide, there is reasonable ground for demanding 
the perpetuity of the means of family support. Denial of the 
right of inheritance by direct heirs thus seems to involve an 
attack upon the unity of the family. On the other hand, the 
right of inheritance within the family has already been largely 
modified by the freedom of bequest; and if a man is at liberty 
to give away his whole fortune to outsiders, we cannot well 
speak of a family right. In parts of continental Europe, in- 
deed, we have the survival of the old idea in the institution 
of compulsory children's share (^portion ISgitime^ PflichttheiU' 
recht). Even in the United States some of the commonwealth 
laws prohibit the bequeathing of more than a certain portion 

^ Political Economy t book v., chap, ix., sec. i. Cf. book ii., chap, ii., sees. 

• • • • 

m, IV. 



of the estate to charitable or public uses when there is a child, 
a widow or a parent. But, as a general rule, in English- 
speaking countries the right of bequest is free. It is well 
known that inheritance is older than bequest, and that the 
lattw? system was introduced into the Roman law, not to 
limit inheritance, but to provide heirs in default of near rela- 
tives. The modern right of free bequest is, therefore, really 
opposed to the older family idea of property, which takes shape 
in the assertion of the right of inheritance. It thus becomes 
a very difficult question to decide how far inheritance may be 
demanded, as of right. Nevertheless, it may be said that 
most thinkers, as well as the mass of the public, would still 
to-day maintain the custom of inheritance, not indeed as a 
natural right or as a necessary consequence of the right of 
private property, but simply as an institution that is on the 
whole socially desirable. Even Mill says of his own scheme: 
*' The laws of inheritance have probably several phases of im- 
provement to go through, before ideas so far removed from pres- 
ent modes of thinking will be taken into serious consideration. " 

While there is some scientific justification for the doctrine 
as originally expounded, it is unquestionable that most of its 
defenders plant themselves squarely on the ground that it is 
the function of the state to check the aggregation of wealth 
into a few hands, and to provide for the equalization of fort- 
unes. These writers would put a limit not only to the amount 
of wealth acquired through inheritance or bequest, but to the 
amount acquired in any manner. No fortunes should exceed 
a definite sum. Such a doctrine is very distinctly socialistic. 
Those who are not prepared to accept socialistic premises 
and socialistic methods of reasoning cannot acknowledge the 
validity of the diffusion-of -wealth argument. 

While the premises thus may be regarded as wrong, the 
conclusion may be right, for the same conclusion may con- 
ceivably be drawn from utterly dissimilar premises. Just as 
it has been elsewhere shown that progressive taxation may be 
upheld by decided opponents of socialism,^ so it can be shown 

1 See my work on Progressive Taxation in Theory and Practice^ pp. 72, 78, 83. 




I I 




beyond dispute that the inheritance tax may be supported 
through entirely different arguments by those who oppose the 
doctrine of the diffusion of wealth. Brushing aside, there- 
fore, the socialistic doctrine as inadequate and unsound, let 
us examine these other arguments. 

The so-called cost-of -service theory, which is occasionally 
found, treats the inheritance tax simply as a fee. The pro- 
bate courts are a source of expense to the government and a 
source of special benefit to those that utilize their services. 
What is more reasonable, then, than that those who receive 
the special benefit should defray the cost ? 

This argument, however, would justify only very light 
charges, and it would result not so much in an inheritance tax 
as in a system of probate fees. Such probate fees are occa- 
sionally found; ^ but as soon as they exceed the cost, the theory 
is no longer applicable. The probate duty in England, for in- 
stance, soon outgrew its original character of a fee. Another 
objection to this theory is that logically the charge ought to 
be regressive, not proportional or progressive; that is, since it 
costs proportionally less, to probate a large sum than a small 
sum, the rate ought to be lower on a large inheritance than on 
a small one — or, at all events, it ought not to grow with the 
size of the inheritance. As a matter of fact, the inheritance 
tax of 1889 in Wisconsin was regressive.* 

A somewhat more substantial theory is that which con- 
siders the inheritance tax as the price of a special privilege. 
It is regarded not so much as a fee paid to defray the cost 
of government services as a charge proportioned to the ad- 
vantages that accrue to the recipient of the inheritance. 
From the legal point of view, this has much to recommend it. 
In the United States, for instance, if regarded as a tax on 

1 So in the American commonwealths, as Wisconsin, Minnesota, Illinois 
and New Hampshire. 

« Estates not exceeding $3000 were exempt; up to $500,000 they paid 
one-half of one per cent ; on the excess above this, one-tenth of one per cent. 
The charge was declared to be " in lieu of fees," but it was held to be a tax, 
and therefore unconstitutional because applicable only to one county. 76 
Wis. 469. See West, oi^. cit., p. 77. 



property, the charge would conflict with the constitutional pro- 
vision found in many commonwealths, requiring all property 
to be taxed equally. If a general property tax were levied, 
and then an additional inheritance tax were imposed, we should 
have technically unequal taxation of some property. Again, 
the tax, if imposed by the federal government, would militate 
against that section of the constitution which requires all di- 
rect taxes to be apportioned according to population. Accord- 
ingly, many of the American states have contrived to uphold 
the constitutionality of the tax only by declaring it to be a tax 
on the devolution of property. It is a tax not on wealth, but 
on the transfer of wealth. So the Louisiana inheritance tax 
was originally upheld by the federal Supreme Court as a 
simple regulation of inheritance.^ But since the federal gov- 
ernment possesses no constitutional power to regulate inheri- 
tances, the federal inheritance tax was sustained as being 
neither such a regulation nor a direct tax on the land, but an 
excise on the right to succeed to the ownership of property.* 

From the economic point of view, there is only a slight 
justification for this contention. It is true that in some 
countries the inheritance tax is still regarded as an indirect 
tax on transactions or transfers. So regarded, it should 
be our aim to abolish, rather than to develop, the tax, 
in conformity with the general tendency of modern reform 
to restrict the scope of taxes on acts and transactions to 
their narrowest limits. To regard the tax as a charge on 
the mere privilege of succession, measured according to the 
special benefits accruing to the successor, is to revert to the 
protection or insurance theory of taxation, which has been 
discarded in modern fiscal science. To regard it simply as 
an indirect tax on transfers is to stamp it with the disap- 
proval of the democratic movement which seeks to mini- 
mize taxes on communication and exchangre. 

There remains only the theory which regards the inheri- 
tance tax as a direct tax on the recipient of the inheritance. 
If we grant that the basis of taxation is the faculty of 

1 Mager vs. Grima, 8 How. 490. 2 Scholey vs. Rew, 23 Wall. 331. 






t •• 


the individual, it is evident that any addition by inheritance 
to the wealth of the individual increases his ability to pay. 
If we grant, further, that the best test of faculty is the revenue 
of the individual, it is clear that this accretion to his revenue 
is of a peculiar character. Income, as the term is commonly 
employed, denotes a regular periodic return ; but an inheri- 
tance is an irregular, a spasmodic, a chance return. In a 
logical income tax there is no room for such accidental or 
fortuitous revenues. Yet they clearly add to the ability of 
the individual, just as the chance gains from speculation un- 
doubtedly increase the faculty of the taxpayer. From this 
point of view, the inheritance tax may best be defended by 
the accidental or fortuitous-income argument. 

It may be claimed that there are possible cases where 
this argument is inapplicable. Thus, after a man's death, his 
widow or children may have to depend entirely on the income 
from his property, where before his death they enjoyed not 
only this sum but also the additional income due to his per- 
sonal exertions. The family ability to pay may be diminished, 
not increased. It may be answered that the state deals with 
individuals, not with families, and that the individual mem- 
bers now have incomes where before they had none. And 
even if we concede this claim, the difficulty can be met by 
exempting a certain amount, and imposing a progressive tax 
on the remainder. For in proportion as the family income 
was derived from property, rather than from the labor of the 
head of family, the share due to his influence becomes corre- 
spondingly smaller, and the loss due to his absence will be 
less keenly felt; while, on the other hand, the family expenses 
themselves are diminished by his death. Finally, in propor- 
tion as the inheritance goes to self-supporting direct heirs or 
to collateral relatives, it may be maintained with truth that 
there is a decided increase in tax-paying ability. 

When, therefore, we have a system of income taxes, the 
inheritance tax may be regarded as a supplementary tax 
to reach the real ability of the individual. Moreover, it may 
be regarded as a convenient method of applying the principle 



of differentiation in the taxation of income. It is now com- 
monly recognized that incomes from property should pay a 
higher rate than incomes from labor. Instead of making 
a difference in the rates to reach this end, the proportional 
income tax may be supplemented by a property tax; or where 
this is for any reason undesirable, by the inheritance tax. 
The latter would then serve the double purpose of reaching 
not only accidental incomes, but also property incomes, since 
all inheritances take the shape of property. 

Even in those states where the chief direct tax is that on 
general property, the inheritance tax may be defended on the 
accidental-income theory For in so far as property is at all 
an adequate test of faculty in taxation, it is simply a mode of 
estimating the regular revenue or income. Accidental in- 
come is as little taken note of in a property tax as in an income 
tax. In fact, as between the two systems, an inheritance tax is 
more necessary to supplement the former tax than the latter. 

An additional theory which has been advanced more re- 
cently is the so-called back-tax theory. Since general prop- 
erty taxes are to a large extent evaded during life, it is said to 
be no more than just that the property should be made to pay 
when the tax cannot be evaded. But in this case it is the prop- 
erty of the decedent, rather than the ability of the heir, 
that is considered. Moreover, the validity of the argument 
is questionable chiefly because it is well-nigh impossible to 
prove the relation between the amount of the inheritance 
tax and the aggregate of taxes evaded during life. In the 
United States, for example, taxes on realty are generally paid; 
it is the tax on personalty that is evaded. The inheritance 
tax ought then to take the shape only of a tax on the succes- 
sions to personal property. As an actual fact, this is the case 
in New York in the direct inheritance tax, and was true of 
the federal income tax of 1894. The reasoning, therefore, 
does not apply to real estate at all. Finally, in proportion as 
other taxes are substituted for the personal property taxes, the 
argument falls away. Where there is a property tax or an in- 
come tax, there may well be some provision for an inventory of 







• p 





the estate after death (as in Switzerland and Germany), with 
severe penalties for the evasion of back taxes. But such a pro- 
vision is entirely independent of the inheritance tax. 

The theory sometimes advanced ^ that the inheritance 
tax is to be regarded as a capitalized income tax paid once 
and for all at the close of life, instead of in small amounts 
during each year, is not so strong. In the first place, the 
existing tax system either does, or does not, reach the in- 
come or property of the living taxpayer. If it does, as 
it ought to do, to capitalize what has already been paid 
involves double taxation. If it does not, the tax is still 
objectionable on the score of inequality, because when two 
people with the same fortune die at diifferent ages and pay 
the same tax, the amount, if regarded as a capitalized in- 
come tax, would mean a very divergent rate of income tax. 
If the tax payable by A, who has enjoyed his income forty 
years, is equivalent to the capitalization of a five per cent 
income tax, the amount payable by B, who has enjoyed his 
income only ten years, would be tantamount to a twenty 
per cent income tax. An inheritance tax, from this point 
of view, would be grossly unjust. This objection, due to 
the varying frequency of the transfer, was first made by 
Adam Smith, but is applicable only when the tax is con- 
sidered as a property or capitalized income tax. According 
to either the price-of-devolution argument or the accidental- 
income argument, the frequency of transfer is immaterial ; 
for the tax is paid each time by a different person, — and 
it is the person, not the property as a whole, that is responsi- 
ble.^ Finally, under the capitalized-income theory no gradu- 
ation according to relationship would be possible. In short, 
the whole theory seems defective. 

The logical defence for the inheritance tax is thus the 
accidental-income argument. It is in harmony with the 

1 Bastable, Fuhlic Finance, p. 526. 

* Some states, however, provide for this supposed inequality by exempting 
the second devolution, if it takes place within a certain number of years. 
Chili fixes the term at ten years. See West, op. cit. , p. 33. 



general basis of taxation — the faculty or ability of the indi- 
vidual to pay; it rounds out the existing system, whether 
based on property or on income ; and it is not open to the 
objections which may be urged in one form or another 
against each of the other theories. 

Granting the desirability of the tax, we are at once con- 
fronted by the problem of graduated or progressive taxation. 
Graduation of the tax according to relationship has met 
with well-nigh universal acceptance ; graduation of the 
tax according to amount has given rise to more contro- 
versy. This question has been fully discussed in another 
place ^ with the conclusion that the theory of progression is 
more applicable to the inheritance tax than to any other part 
of the fiscal system ; and that, whether we base our demand 
on the limitation-of -inheritance theory, the faculty theory, 
or the compensatory theory, some scale of progression is both 
desirable and practicable. 

The inheritance tax to-day scarcely needs defence. It is 
found in almost every country; and the more democratic 
the country, the more developed is the tax. In some 
of the Canadian provinces, in the Australian colonies, in 
the Swiss cantons, in England itself, the rates are not only 
progressive, but highly progressive. The recent reforms in 
England are fully described in another chapter.^ In the 
United States also, there is now a decided movement toward 
the progressive inheritance tax. The collateral inheritance 
tax is now (1900) found in twenty-one commonwealths.* 

1 Cf. the author's work on Frogressive Taxation, pp. 213, 215. 

* Infra, chap. x. 

« The date when first imposed is put in brackets : California [1893], Con- 
necticut [1889], Delaware [1869], Illinois [1887, only for Cook County ; 1895, 
for the state], Iowa [1896], Maine [1893], Maryland [1845], Massachusetts 
[1891], Michigan [1899], Minnesota [1897], Missouri [1899], Montana 
[1897], New Jersey [1892], New York [1885], Ohio [1893], Pennsylvania 
[1826], Tennessee [1891], Vermont [1896], Virginia [1844 to 1884, again 
in 1896], West Virginia [1887], and Wisconsin [1899]. The tax was declared 
unconstitutional in the following states in the years mentioned in brackets : 
Louisiana [1899], Michigan [1894], Mmnesota [1875], Missouri [1898], New 
Hampshire [1878], and Wisconsin [1890]; but in four of these six cases the 





I ) 1 






The direct inheritance tax exists in seven commonwealths,* 
the rates being one per cent in every case except that of 
Connecticut, where it is one-half of one per cent. In four 
of these seven commonwealths 110,000 is exempted, while 
in Michigan the exemption is fixed at $5,000, in Montana 
$7,500, and in Illinois at $20,000. The direct tax applies 
exclusively to personal property in every case except Con- 
necticut and Illinois, where it affects all property. But it 
will be remembered that in Connecticut the rate is low, and 
that in Illinois the exemption is high. The only case in 
which the progressive principle has been applied to the 
direct tax is that of Ohio, where the law of 1894 was declared 
unconstitutional for that reason in the following year. On 
the other hand the progressive principle has been applied 
to the collateral tax in two cases — Missouri and Illinois. 
The Missouri law of 1895 was overthrown in the following 
year, but the more important and more radical law of 
Illinois of the same year was upheld not only by the state 
court but also by the federal court, in what has become a 
leading case.* Under this decision, the principle of progres- 
sion is applicable to the direct taxes as well. Partly as a 

constitutional objections were obviated by later laws which, as indicated 
above, now exist in Michigan, Minnesota, Missouri and Wisconsin. The 
tax at one time existed, but was abolished, in Alabama [1848 to 1868], 
Louisiana [1828 to 1877, again in 1894 for foreign heirs, but pronounced un- 
constitutional in 1899], North CaroUna [1847 to 1884], Virginia [1848 to 1884, 
but re-enacted in 1896]. 

1 The date when first imposed is put in brackets : Connecticut [1897], 
IlUnois [1895], Michigan [1899], Minnesota [1897], Montana [1897], New 
York [1891], and Wisconsin [1899]. The direct tax was declared unconsti- 
tutional in the following cases, partly for special reasons, partly because 
of the exemptions or progressive features: Ohio [law of 1894 in 1895], 
Michigan [law of 1893 in 1894], Pennsylvania [law of 1897 in 1899]. 

* Kochesperger r«. Drake, 167 HI. 122 ; Magoun w. Trust and Savings 
Bank, 170 U. S. 283. 

The rates of the Illinois tax are as follows : For direct heirs, one per cent 
on the excess above ^20,000 ; for uncles, aunts, nephews, nieces, and their 
descendants, two per cent on the excess above $20,000 ; in all other cases, 
the exemption is $500 and the rates are : from $500 to $10,000, three per 
cent ; $10,000 to $20,000, four per cent ; $20,000 to $50,000, five per cent ; 
over $50,000, six per cent 



consequence of this decision a number of progressive inher- 
itance tax bills have recently been introduced in several 
commonwealths, while the principle itself has been applied 
both to the direct and to the collateral inheritance taxes 
unfortunately levied by the federal government since 1898. ^ 
I say unfortunately, because the entrance of the federal 
government into a field so well occupied by the separate 
states will tend seriously to complicate the problem of tax 
reform within the commonwealths themselves. 

A comparison of the recent fiscal development in demo- 
cratic states would not be uninstructive. In only three 
countries does the old general property tax still survive — 
in Switzerland, in Australia and in the United States ; and 
in all three the system has become so defective that it has 
been supplemented by other sources. The Swiss cantons 
first developed the income tax, then the inheritance tax, and 
have only recently been paying attention to the corporation 
tax. The Australian colonies were first in the field with 
the inheritance tax, later developed the income tax, and have 
scarcely yet realized the importance of the corporation tax. 
The American commonwealths, finally, were the first to 
introduce the corporation tax, have more recently turned 
their attention to the inheritance tax, and have done little 
more than to debate the income tax. The differences are 
suggestive, but are easily explicable when we recall the 
economic conditions in each country. With all the varia- 
tions in detail, it is clear that the democratic trend is in 
one general direction; and it is more than probable that 
progressive inheritance taxes will play by no means an 
insignificant r61e in the fiscal systems of the future. 

1 The federal tax applies only to personal property over $10,000. On 
estates between $10,000 and $25,000, the rate varies according to five classes 
of relationship, from three-quarters of one per cent to five per cent. On 
estates from $25,000 to $100,000, these rates are increased one-half ; from 
$100,000 to $500,000 they are multiplied by 2 ; from $500,000 to $1,000,000 
by 2i ; over $1,000,000 by 3. On the highest amounts the tax thus varies 
from two and a quarter to fifteen per cent. The total tax, federal and state, 
would thus in several states amount to twenty or tweuty-one per cent 













In a previous chapter we have considered the inadequacy 
and practical failure of the general property tax. In all ages 
and in all countries it has been found almost impossible to 
reach intangible personalty. What has always been a diffi- 
cult task has become immensely complicated to-day through 
the growth of the modem corporation. At present, espe- 
cially in industrial countries, the far greater part of the 
personalty in the hands of individuals consists of intangible 
property — mainly of corporate securities. The first reform 
of our direct taxation, therefore, is conceded by all to lie 
in this direction. Governments are everywhere confronted 
by the question how to reach the taxable capacity of the 
holders of these securities, or of the associations themselves. 
Whom shall we tax and how shall we tax them in order to 
attain a substantial justice? Perhaps no question in the 
whole domain of financial science has been answered in a 
more unsatisfactory way. In the United States we have a 
chaos of practice — a complete absence of principle ; in 
Europe, with the possible exception of England, the situa- 
tion is scarcely, if at all, better. Moreover, in spite of the 
generally recognized need of reform, there has thus far been 
no comprehensive attempt, from the standpoint of theory, 
to evolve order out of the chaos into which the whole sub- 
ject is plunged.^ 

1 The only book on this subject is Dietzel's Die Besteuerung der Aktien- 
gesellschaften in Verbindung mit der Gemeinde-Besteuerung, 1859. This, 
however, has no application to American conditions ; the distinctions it seeks 
to make are largely valueless, and the whole book is antiquated. 




The first requisite in any scientific investigation of this 
kind is to have the facts ; for without a knowledge of exist- 
ing conditions, any propositions for reform would be value- 
less. Nevertheless, the facts of corporate taxation have 
never been presented in their entirety. Given the laws, 
it is necessary next to consider the interpretation put upon 
them by the courts. ^ Even then we have only the legal, 
not the economic view ; for, unfortunately, good law is not 
always sound economics. It is therefore advisable to sub- 
ject the legal principles involved to an analysis from the 
economic point of view. Only after such an examination 
and comparison of the facts of taxation in the United States 
and in Europe, will it be possible to reach any conclusions 
that may lay claim to scientific precision. Only such con- 
clusions, arrived at through such a method, should be made 
the basis for practical reforms. 

This then is the program of the present series of chapters 
on the taxation of corporations. The great importance of 
having all the facts accurately stated leads me at the outset, 
even at the risk of tediousness, to an examination of the 
history and of the actual conditions of such taxation in the 
United States, while the theory and criticism will be reserved 
for future consideration. 




i :l 


Early Taxation of Corporation%. 

During the first two decades of this century, banks and 
insurance companies formed the chief examples of corpora- 
tions, apart from the numerous turnpike roads and toll 
bridges. During the twenties and thirties the development 

iThis chapter, as well as the two immediately following, will con- 
tain few direct references to the laws and the legal decisions. For a full 
statement of the laws as they existed in 1890 the reader is referred to the 
notes in the original articles in the Political Science Quarterly, vol. v., from 
which the present chapters are adapted. When the present tense is used 
in the followmg pages it refers to the conditions as they existed in 1895, the 
date of the first edition of this volume. Although there have been several 
changes in detail since that date, the fundamental principles have remained 
the same. 

ill If I i 



of transportation facilities led to the creation of many canal 
and railway companies; and it was not long before many 
other forms of commercial and industrial enterprise followed 
in the same path of incorporation. The early tax laws made 
no mention of corporations. But as the general property 
tax was in vogue throughout all the commonwealths, it was 
tacitly assumed that the property of artificial as well as of 
natural persons was liable. Corporations were new institu- 
tions which the legislators in happy-go-lucky fashion, tried 
to tax under existing methods, whether they naturally be- 
longed there or not. Our Solons had neither the leisure 
nor the inclination to make a more careful study of the 


The first commonwealth law which treated of the taxation 
of corporations in general was the New York law of 1823. 
This provided that "all incorporated companies receiving a 
regular income from the employment of their capital " should 
be considered " persons " liable to the general property tax. 
They were required to make returns to the county officers of 
all their property and their capital stock, paying the tax 
themselves and deducting it from the dividends of stock- 
holders. They might, however, commute the tax by papng 
to the treasurers of the counties where they transacted busi- 
ness ten per cent on their " dividends, profits, or income," 
(which the legislator evidently presumed to be identical). 
These taxes were paid by the county officers to the state, and 
were then credited to the counties in proportion to the amount 
of stock held within each county, after deducting the state tax. 
In 1825 and again in 1828 the system was slightly changed 
so as to conform more closely to the general property tax. 
The tax was made applicable to "all monied and stock 
corporations deriving an income or profit from their capital 
or otherwise." The real estate of these corporations was 
separately taxed; and in addition, they paid the property tax 
on their capital stock paid in or secured to be paid in, deduct- 
ing the amount paid for real estate and the stock belonging to 
the state and to literary and charitable institutions. Manu- 



facturing and turnpike companies paid on the cash value, not 
on the amount, of the capital stock; turnpike, bridge and 
canal companies, whose " net income " did not exceed five 
per cent of the capital stock paid in, were exempted ; while 
manufacturing and marine insurance companies under the 
same conditions might commute by paying five per cent of 
their net income. It is thus seen that by this law corpora- 
tions were divided into different classes, and that the system 
followed was the general property tax, with the exceptions 
that if a corporation had no profits it paid no tax on its stock, 
and that certain classes might commute by paying an income 
tax to the local officials. This remained the tax system, 
except for banks and for foreign insurance companies, until 
the middle of the century. 

In 1853 the total exemption of non-profit-paying corpora- 
tions was abolished and all companies were taxed on their 
real estate and on their capital stock, together with their 
surplus profits or their reserved funds in excess of ten per 
cent of the capital, with the same deductions as above. AH 
corporations, however, whose profits did not equal five per 
cent on the capital stock might commute by paying five per 
cent on their "net annual profits or clear income." It seems 
that very few ever availed themselves of this doubtful privi- 
lege, and accordingly in 1857, the law was again changed. 
The principle of commutation was abandoned; and since 
there was no distinction between profitable and unprofitable 
companies, so far as personal property was concerned, all cor- 
porations were taxed on their realty and on the actual value 
(not the amount) of their capital stock plus the surplus 
profits or reserve in excess of ten per cent of the capital. In 
addition to the previous deductions a further abatement was 
made for the capital invested in taxable shares of other com- 
panies. The remainder was then taxed in the same manner 
as the other personalty and realty of the county. This re- 
mained the law of New York, with the exception of some 
special provisions as to banks and insurance companies, until 
the recent changes in the taxation of corporations. These 

' vJ 






*r I 





changes, however, affect only taxation for state purposes, 
leaving the local taxation still governed by the provisions 
of the law of 1857. Foreign corporations, however, are tax- 
able for local purposes, under a law of 1855, on all sums 
actually invested in the state. 

It appears, then, that the New York system was a taxa- 
tion of the real and personal property of corporations by the 
local assessors, and that the personal property was virtually 
defined as the capital stock not invested in real estate. In 
the other commonwealths, where corporations were taxed at 
all they were included in the general property tax ; and most 
of the laws lacked even such provisions as those of the New 
York statute in reference to the capital stock. A typical 
enactment of this kind is the Connecticut law of 1826, which 
provided simply that the personal property of a corporation 
should be taxed in the place where its principal business was 
transacted. In Massachusetts, on the other hand, where the 
first general law was passed in 1832, only the real estate^and 
machinery of corporations were taxed. In lieu of the tax 
on personalty there was substituted the property tax on the 
corporate shares in the hands of individuals, a proportionate 
amount being deducted from each for the part of the capital 
stock invested in machinery and in real estate. Even this 
was still in theory the general property tax. In the other 
commonwealths, when the corporation was taxed, the shares 
in the hands of individuals were usually exempt. The only 
state which from the very outset broke with the principle of 
the general property tax was Pennsylvania, whose method 
we shall learn a little further on. 

With this one exception, then, the early principle of cor- 
porate taxation was the assessment of aU real and personal 
property by the local officials ; corporations, in other words, 
were taxed by the same method as individuals. This primi- 
tive system has been retained up to the present day by many 
commonwealths for almost all classes of corporations; and 
in eight states, indeed, the constitutions require that cor- 
porate property be taxed in the same manner as that of indi- 



viduals.^ The practical defects of such a system, however, 
have led to numerous changes in many of the progressive states, 
and the tendency is everywhere away from the original plan. 
In a previous chapter we have seen that the shortcomings 
of the general property tax were five in number : inequality 
of assessment, failure to reach personalty, incentive to dis- 
honesty, regressivity and double taxation. With few excep- 
tions, these objections are as applicable to the taxation of 
corporations as to that of individuals. All the facts here 
to be recounted set the stamp of disapproval upon the 
original plan. In the words of a celebrated report on taxa- 
tion, this method of assessing corporations locally on their 

general property, is "as a system, open to almost every 
conceivable objection." 2 


II. Development of the Corporation Tax. 

As a result of these practical defects many commonwealths^ 
have abandoned in part, or altogether, the taxation of corpo- 
rate property by local officials. The movement away from 
their original position has taken three directions : (1) the 
property of transportation companies, especially railroads, 
has been assessed separately by a special board and accord- 
ing to well-defined rules ; (2) certain classes of corporations, 
beginning with banks and insurance companies, but gradu- 
ally including transportation companies and in a few cases 
other corporations, have been taxed, not on their property, 
but on certain elements supposed to represent roughly their 
taxable capacity; (3) all corporations have been taxed by a 
uniform rule, according to principles varying more or less in 
the different commonwealths. 

1 Alabama, Colorado, Florida, Iowa, Mississippi, Nevada, Ohio and South 

2 Taxation of Bailroads and Bailroad Securities. By C. F. Adams, Jr., 
W. B. Williams and J. H. Oberly, a Conunittee appointed at a Convention 
of State Railroad Commissioners, etc. (1880), p. 8. 

* The word commonwealth is here used to include the territories as well 
as the states. 



' » 

r » / 





The first tendency has progressed so far that only nine 
commonwealths^ apply ^^ primitive methods of the property 
tax to railroads. In these states, located with a single excep- 
tion in the South and in the far West, the regular local 
assessors still include railroad property in the county assess- 
ment. Twenty-four commonwealths^ have broken away 
from the original custom so far as to have the railroad 
property assessed for state purposes not by local officials 
but by a special board.^ The tax, it is true, is imposed 
at the usual rate of the general property tax ; but some 
of the difficulties of local assessments of such property 
have been obviated. In a few of these cases, like Cali- 
fornia, Colorado, Idaho, Indiana, Kansas and Missouri, the 
state boards assess the greater part of the property, like road- 
bed and rolling stock, but leave the remainder to be appraised 
by the local assessors. In most instances special rules are 
provided for the assessment of the track and rolling stock of 
roads that lie partly without the state, generally in the pro- 
portion which the state mileage bears to the whole mileage. 

For reasons to be discussed later, this first reform of rail- 
road taxation has not been completely satisfactory. The 
remaining fifteen* commonwealths, including most of the 

^ Louisiana, New Mexico, Oklahoma, Oregon, Rhode Island, Tennessee, 
Texas, Utah and Washington. 

> Alabama, Arizona, Arkansas, California, Colorado, Florida, Idaho, Illi- 
nois, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Montana, 
Nebraska, Nevada, New Hampshire, North Carolina (as an alternative 
method), Ohio, South Carolina, South Dakota, Virginia and West Virginia. 
In North Carolina, if the road is not taxed on its property it pays on gross 
receipts. In Kentucky and Mississippi there are additional taxes. 

' This is known as the board of railroad commissioners in Arkansas, 
board of railroad assessors in Kansas, board of assessment for railroads in 
Alabama, board of appraisers and assessors in North Carolina, board of pub- 
lic works in Virginia and West Virginia, state executive council in Iowa, 
board of railroad commissioners in Kentucky and Mississippi, state board of 
tax commissioners in Indiana, and board of equalization in all the remaining 
cases except Florida, where the comptroller, attorney-general and treasurer 
act tx officio as assessors. 

* Connecticut, Delaware, Georgia, Maine, Maryland, Massachusetts, Michi- 
gan, Minnesota, New Jersey, New York, North Carolina, North Dakota, 
Pennsylvania, Vermont and Wisconsin. 



prosperous and progressive states, have therefore abandoned 
property as the basis of taxation, without reference to the 
manner of assessment. The methods adopted by them are 
comprised in the second of the three tendencies. 

This second movement away from the property tax has 
consisted in subjecting particular classes of corporations to 
special taxes on other elements than their general property. 
It will be well to discuss these classes in order. 

1. Bankz. 

The direct taxation of banks dates back to the beginning 
of this century. During the war with England the federal 
government imposed certain stamp duties on notes issued or 
discounted by banks. But this law of 1813 contained a 
further provision permitting the banks to compound for the 
duty by paying one and a half per cent on the amount of 
the annual dividends. 

The first state law providing for a direct tax on banks 
was the Georgia act of 1805, which levied a tax of two 
and a half per cent on their capital stock and one-half of one 
per cent on their circulation. Massachusetts followed with 
the act of 1812 which imposed a tax of one-half of one per 
cent on the amount of their capital stock. A more important 
law was the Pennsylvania act of 1814, for Pennsylvania from 
the very outset assumed an attitude different from that of 
the other states. According to this law, banks were 
taxed at the rate of six per cent upon their dividends 
or net profits ; if exempted from the national tax, the rate 
was to be eight per cent. In 1824 the rate was definitely 
fixed at eight per cent, and a few years later the principle 
of graduated taxation was introduced. The act of 1834 
imposed on banks of issue a tax on dividends, which varied 
from eight to eleven per cent as the dividends were under 
six or over eight per cent, and in 1859 the law was extended 
to banks of discount and deposit. In 1861 this progressive 
tax was increased so as to vary from eight per cent if the 





\ ' y 





dividends were six per cent, up to thirty if the dividends 
were twenty-five. Five years later, the tax was replaced by 
the system to be explained below. 

Ohio and Virginia were the only other states which began 
and for some time continued to tax banks on dividends, 
although several states, like Vermont, in chartering special 
banks sometimes inserted a provision in the charter, reserv- 
ing a portion of the profits or dividends. In Ohio a tax of 
four per cent on dividends was imposed in 1815, but in 
1816 the general banking law obliged the banks to set aside 
profits which at the expiration of the charter would amount 
to four per cent of the total stock. In 1825 this charge was 
commuted into a tax of from two to four per cent on divi- 
dends, and in 1831 the rate was raised to five per cent. In 
1845 banks were required to pay, in lieu of the tax on divi- 
dends, six per cent on the profits, deducting expenses and 
ascertained losses. Five years later the taxation of profits 
or dividends was abolished, and the banks were henceforth 
taxed at the rate of the general property tax on the amount 
of their capital stock and contingent fund. In Virginia 
the dividends tax did not begin until 1846, when the banks 
were required to pay one and a quarter per cent on dividends. 
This rate was gradually changed until during the Civil War 
it reached seventeen per cent. In 1870 a new system was 
introduced, based partly on capital stock, partly on income 
or dividends above $1500; but in the following year the 
present method was adopted. 

While Pennsylvania and Virginia were the only common- 
wealths to retain dividends as the basis of taxation, a few 
states taxed banks on their capital stock. Thus the Massa- 
chusetts tax of 1812, changed in 1828 to a tax of one per 
cent on the amount of the capital stock actually paid in, 
remained in force practically without change until the 
Civil War, when the state banks were superseded by the 
national banks. This tax was in addition to that levied 
on the individual stockholders, but, curiously enough, it 
applied only to the chartered, not to the free banks. 



In Louisiana a tax was imposed in 1813 on the "stock 
in trade" of all banks. In other states, again, a special 
tax was levied only on the proportion of the capital stock 
owned by non-residents, as in the first Connecticut law 
of 1830, which imposed a tax of one-third of one per cent. 
In most of the commonwealths, however, the special state 
taxation of capital stock came much later, since the prin- 
ciple of the property tax prevailed. When the capital 
stock was taxed at all, it was simply as representing the 
personal property, and hence it was taxable locally at the 
general rate of the property tax. The real estate was taxed 
separately, as in New York, where the personal property 
tax was levied on bank stock and was payable by the cor- 
poration. According to the law of 1823, discussed above, 
the tax was assessed on the par value of the stock, but 
in 1847 the basis was changed to the actual market value 
of the stock, without deduction for debts. It is worthy 
of note that in North Carolina, where the taxation of capi- 
tal stock did not come until 1859, the rate of the tax varied 
with the dividends. 

Since the inception of the national banking system most 
of the commonwealths have again changed their methods 
of taxing banks. The history of this change can be well 
traced in the legislation of New York. According to the 
laws mentioned above, banks were taxable on so much of 
their capital stock as represented their personal property. 
Under these acts the banks claimed exemption for that part 
of their capital invested in United States bonds, but their 
claim was disallowed by the court of appeals, on the ground 
that no unfriendly discrimination was thereby shown to the 
United States as a borrower. In 1862, however, the national 
government provided by law for the total exemption from 
state taxation of all stocks, bonds and other securities of the 
United States. The court of appeals then held that this 
provision applied only to stock and bonds issued after 
the date of the law, but that all securities issued prior 
thereto were still taxable according to the state statute. 







I \ 


II .i 




This decision was reversed by the federal Supreme Court, 
which held that any " stock of the United States constituting 
a part or the whole of the capital stock of the bank is not sub- 
ject to state taxation." The legislature then sought to evade 
this decision by enacting that banks should be taxable " on a 
valuation equal to the amount of their capital stock," with 
similar deductions and exemptions as in the law of 1857; 
and the court of appeals pronounced this law valid, on the 
ground that the tax was on capital stock and not on prop- 
erty. This decision was in turn reversed by the Supreme 
Court, which held the tax to be levied on the property of 
the bank, and therefore subject to deduction for non-taxa- 
ble investments. In 1864 the national banking act was 
passed, which permitted the taxation of national bank shares 
in the hands of individuals, but not at a greater rate than 
other moneyed capital. This gave the New York legisla- 
ture the desired opportunity, and in 1865 it enacted a law 
providing that all shares in national banks should be in- 
cluded in the valuation of the personal property of indi- 
viduals. The court of appeals held this to be valid. It 
must be remembered, however, that the state banks were 
still taxed on their capital. The Supreme Court of the 
United States now upheld the principle of the taxability of 
shares, on the ground that a tax on the shares in the hands 
of individuals was not a tax on the capital of the bank. 
Nevertheless it reversed the New York decision on a minor 
point, namely, that since the capital of state banks invested 
in national securities was exempt, a tax on the capital was 
not equivalent to a tax on the shareholders, and hence to tax 
state banks on their capital and shareholders of national 
banks on their shares, constituted a discrimination against 
national banks. This decision led to the New York law 
of 1866, which abolished the taxation of bank capital and 
provided for the taxation of shareholders of both state and 
national banks in the same way, i.e., on the value of the 
shares, with deductions for the capital invested in real 
estate. The banks were no longer taxed on their capital, 



but were required to retain the dividends from the stock- 
holders until the tax was paid. The Supreme Court sus- 
tained this law, holding that no deduction should be made 
from the value of the shares for any part of the bank's 
capital which might consist of United States bonds. Later 
it decided the state tax on shares to be valid, even if it were 
collected from the banks. The question then arose whether 
it was competent for the shareholder to deduct the value 
of his debts, as was the case in the taxation of all other 
personal property. The court of appeals decided in 1867 
in the negative, holding that there could be no deduc- 
tion of debts from the assessment of bank shareholders. 
This case slumbered for thirteen years ; but in 1880 a deci- 
sion involving this precise question was reversed by the United 
States Supreme Court on the ground that " the prohibition 
against the taxation of national bank shares at a greater rate 
than that imposed upon other moneyed capital could not be 
evaded by the assessment of equal rates of taxation upon un- 
equal valuations." The consequence was an alteration in the 
New York law, which now since 1880 permits the same deduc- 
tions as in all other taxable property and which provides for 
the assessment of shares, whether owned by residents or non- 
residents, at the place where the bank is located. 

The result of this development is that bank shareholders 
pay a large proportion, and in some towns the greater part,^ 
of all the taxes on personal property, and that they alone are 
unable to evade the otherwise so laxly executed tax on per- 
sonalty. The most recent attempt of the banks to remedy 
this obvious inequality has been frustrated by a decision of 
the Supreme Court that the words "moneyed capital," in 
the revised statutes, are practically confined to banks, and 
that the imposition of a lower rate of taxation on other cor- 
porations does not invalidate the bank tax.^ I do not of 

1 In Albany the banks paid fifty -eight per cent of all taxes on personalty. 
Neva York State Assessors^ Eeport, 1878, p. 16. 

2 The cases in their order are as follows : 23 N. Y. 192 ; 26 N. Y. 163 ; 2 
Black 870 ; 2 Wall. 200 ; 33 N. Y. 161 ; 3 Wall. 573 ; 4 Wall. 244 ; 9 Wall 
353 ; 36 N. Y. 59 ; 100 U. S. 539 ; 129 U. S. 138. 



/ 1 

^ 1 



course mean to plead that the banks should be treated ten- 
derly or that they should be supported in their attempts 
to evade taxation ; but it is a manifest incongruity that 
bank shareholders almost alone among owners of personalty 
should be taxed. That they should be singled out for what 
is actually heavier taxation, is one of the unjust conse- 
quences of the general property tax. The only inference is 
the necessity of a comprehensive reform. 

This system of taxing banks, whose development has just 
been sketched for the state of New York, is now general 
throughout the country, at least in those commonwealths 
which do not still cling to the method of the general prop- 
erty tax as applied to corporations. It may be summed up 
as the separate taxation of real estate plus the taxation of 
the shares in the hands of individuals, whose tax is generally 
paid by the bank and then withheld from the dividends. 
Some commonwealths have enacted more detailed provisions 
to avoid the confusion arising from the taxation of non-resi- 
dents' stock. The Massachusetts law, for example, which 
dates back to 1868, provides that the assessors of a town 
where a national bank is located shall omit from the town 
valuation all shares held by non-residents, and that the taxes 
paid by the bank on these shares shall be credited to the 
places where the owners reside. In Connecticut the shares 
of non-residents are not taxed at the usual rate, but the 
banks themselves pay one per cent on the market value of 
such shares as a "non-resident stock tax." 

A few commonwealths still tax banks directly on their 
capital stock at a special rate. In Pennsylvania, for example, 
the shares pay four mills on the dollar, but incorporated 
banks may elect, as all do, to pay instead eight mills on the 
par value of their capital stock. They are then liable 
only for the local real estate tax and for the state tax on 
their moneys at interest. A three per cent net earnings or 
income tax applies only to the unincorporated banks with- 
out capital stock. In Kentucky, where the banks are 
taxed on capital and surplus, they waive all rights to a 




different mode or smaller rate of taxation. In a few cases, 
however, we find a mixed system. Thus in Georgia banks 
are taxed not on their capital, but on their property, so far 
as the value of the property is not represented in the market 
value of the shares. The shares are then taxable in the 
hands of the shareholders and the bank itself is further tax- 
able on its surplus and undivided profits. Finally, in some 
of the Southern commonwealths, as North Carolina and 
Florida, we find in addition to a tax on bank shares a license 
tax fixed according to capital or to business transacted. 
New York has a special law taxing foreign banks at the rate 
of one-half of one per cent on their deposits or moneys used 
in their business. 

There remains the subject of savings banks. When they 
are not incorporated stock companies, several states, including 
all New England, tax them on their deposits, at rates ranging 
from one-quarter to one per cent. In Massachusetts, where, 
up to that time, the deposits had been nominally taxable 
as the personal property of the individual depositors, the new 
system came into use in 1862 ; in Vermont, not until 1878 ; 
in the rest of New England, in the interval. In Massachu- 
setts, however, deposits invested in real estate or mortgages 
on real estate are exempt. In Maine the tax since 1893 is 
on deposits, reserve fund and undivided profits, less certain 
deductions.^ In other cases, as in New York, deposits are 
expressly exempted from taxation, but savings banks are 
then taxed for local purposes on their surplus not invested 
in United States securities, and the individual depositors are 
taxable on their deposits as property. In Pennsylvania 

1 The deposits, reserve fund and undivided profits are added together. 
Deductions are allowed for the amount invested in federal bonds ; for the as- 
sessed value of the real estate ; for one-seventh of other assets, loans and 
investments acquired before 1893 ; for two-sevenths of loans to persons doing 
business in the state, of investments in mortgages in New Hampshire and 
Maine, of securities of the state, of bonds issued or guaranteed by corpora- 
tions located and doing business in the state, of the cash on hand and of cash 
deposits in the state. The remainder is declared to be the value of the franr 
chise, which is then taxed at the rate of seven-eighths of one per cent. 










£$•5/1 KS" m TAXATION' 

savings banks are taxed in the same way as other banks, — 
that is, if they are neither incorporated nor possessed of any 
capital stock, they pay four per cent on their net earnings or 
income ; otherwise they pay eight mills on the par value of 
their stock. In most of the remaining commonwealths 
there is no special taxation of savings banks, unless they 
are incorporated. If incorporated in Iowa and Ohio they 
pay the usual property tax on their paid-up capital, but 
their deposits and franchises are expressly exempt. The 
depositors, however, are taxed. 

In the matter of bank taxation, therefore, we are begin- 
ning to reach uniformity except in the case of savings banks. 
But the uniformity, so far as its exists, has been imposed 
upon the states by the national law. Even this approach 
to a solution of the problem, moreover, as will appear later 
on, has not been entirely satisfactory. 

2. Iraurance Companies. 

The next corporations to break away from the general 
property tax were the insurance companies. At first only 
foreign companies^ were taxed. The earliest law was that 
of 1824 in New York, which provided that foreign fire in- 
surance companies should pay ten per cent on all premiums 
for property insured within the state. In 1829 the law 
was extended to foreign marine insurance companies, and 
in 1837 the rate was reduced to two per cent. Domestic 
companies were taxable on their capital stock, like all 
other corporations, according to the general law of 1828. 
Ohio started out by taxing insurance companies as well 
as banks, assessing them in 1830 four per cent on their 
dividends. But this form of taxation was soon aban- 

1 The use of the term foreign corporations in the American statutes is 
confusing. Generally it designates companies incorporated in another of 
the American commonwealths. In only a few cases does it refer to non- 
American states. In these chapters it will be used in the former sense unless 
otherwise indicated. I 



doned. In Pennsylvania, where domestic companies were 
included in the general law of 1840, foreign insurance com- 
panies were not specially taxed until 1849, when the law 
imposed a tax of one per cent on the gross premiums of 
foreign life insurance companies. In Maryland the custom 
dates from 1839, when a tax of two per cent was imposed on 
the premiums received by the agents of foreign insurance com- 
panies. In Vermont foreign fire insurance companies were 
taxed eight per cent on their premiums in 1825 ; but the 
law was repealed five years later. In Massachusetts the tax 
was first levied by the law of 1832, which is of special interest 
as the prototype of what is known in several of our common- 
wealths to-day as the "reciprocal acts." The act provided 
that if any commonwealth taxed the agents of Massachusetts 
insurance companies, the insurance companies of such com- 
monwealth were to pay one-half of one per cent on the whole 
amount insured by such companies in Massachusetts. At 
present the reciprocal acts go somewhat further and prescribe 
that foreign insurance companies are to be taxed at the same 
rate (if higher than the home rate) that is imposed on home 
insurance companies by the commonwealth chartering the 
foreign company; but if the tax imposed by the foreign 
commonwealth is not higher, the foreign companies pay as a 
rule two per cent on premiums. Such reciprocal acts are 
found in Connecticut, Illinois, Kansas, Maine, Massachusetts, 
New York, Ohio and Vermont. The Kansas court calls them 
"an appeal for comity," "a demand for equality;"* but in 
reality they are retaliatory, rather than reciprocity, laws.^ 

This premium tax on foreign companies was gradually ex- 
tended to domestic companies, until at present it is found 
in almost every commonwealth, only a few of the Western 
states clinging to the original custom of taxing them on 
their property. Occasionally the tax is known as an insur- 
ance license or an insurance fee. In some of the Southern 

1 C/. 29 Kan. 672. 

^ Alabama declared them unconstitutional for this reason ; 60 Ala. 217. 
In the other states they have been upheld. 

\ \ 







states, like North Carolina, the companies must pay both fees 
and taxes. In a few cases, as in Alabama, Connecticut, 
Indiana, Missouri and West Virginia, the principle of tax- 
ing premiums has been applied only to foreign companies, 
while home companies are still taxed on their property, 
assets or surplus. Many commonwealths make a further 
distinction between domestic and foreign companies, taxing 
the latter more than the former. Thug Kentucky, Maryland 
and Ohio tax the gross receipts of foreign companies only. 
In Pennsylvania domestic insurance companies (except mu- 
tual companies) pay eight-tenths of one per cent, and foreign 
companies two per cent on premiums. Delaware imposes a 
small license on domestic companies, but levies a gross 
receipts tax on foreign companies. In Minnesota foreign 
companies pay the property tax plus a two per cent pre- 
miums tax ; but domestic companies pay only a real estate 
tax plus the premiums tax, while domestic mutual life 
companies pay no premiums tax at all. In New Jersey 
insurance companies, other than life, are taxed one per cent 
on premiums, while domestic life insurance companies pay 
one per cent on their surplus plus thirty-five one-hundredths 
of one per cent on premiums ; but the payments from the 
foreign companies are credited to the domestic companies. 
In New York domestic life insurance companies are exempted 
from taxation, but foreign companies pay two per cent on 
premiums ; and while all fire and marine insurance companies 
pay the same tax for state purposes, the foreign companies 
alone pay an additional local tax. 

Although the premiums tax is the general tax, we find 
some instances where taxes are based on different elements. 
Some of the Southern and a few of the Western states, like 
Mississippi and Idaho, impose license or privilege taxes of a 
fixed amount. In Louisiana the gross receipts tax is gradu- 
ated. Other states combine various taxes. Thus we find 
in Virginia the general property tax on a company's realty 
and personalty, a sp>ecrfic tax of $200^ and an additional tax 
of one per cent on gross receipts in the state. Massachusetts 



imposes on life insurance companies a tax of five mills on 
each thousand dollars insured, as compensation for the state 
valuation of policies, and a "license tax" of one-fourth of 
one per cent on the net value of all policies. Other insurance 
companies pay an excise tax of one per cent on premiums 
and assessments ; but non- American companies pay four per 
cent on premiums (or two per cent if there is a guarantee fund 
of $200,000). Finally, a special life insurance company is 
taxed on its funds, deducting deposits invested in mortgages.^ 
New Hampshire taxes domestic fire insurance companies 
one per cent on paid-up capital, in lieu of all other taxes. 
Wherever the reciprocal law exists, as in Connecticut and 
Massachusetts, there is a highly diversified system of insur- 
ance taxation. 

The tax on premiums is generally levied on gross premiums 
or on gross receipts. Sometimes, as in Arkansas, Illinois, 
Maine, Missouri, Nebraska and Washington, the tax is on 
net receipts. But in Illinois, Maine and Missouri only 
foreign companies are subject to this tax. In Indiana we 
formerly found the seemingly curious distinction that home 
companies were taxed on net, and foreign companies on gross 
receipts; but the taxes were really the same, because ex- 
penditures, losses paid and return-premiums were deducted. 
So also in Alabama the tax, while nominally on gross, 
is in reality on net receipts. In Indiana domestic com- 
panies are now taxed on their property and franchise. 
In Illinois the net receipts of foreign insurance companies 
are entered as personal property and are included in the 
general property tax; the companies are then free of all 
local taxes, except for the benefit of fire departments in 
cities, which may impose a tax not exceeding ten per cent 
on gross receipts. In most of the commonwealths the real 
estate of the companies is also taxable. Even when the state 
tax on premiums or on other elements is declared to be in 
lieu of other taxation, as in Maine, the declaration applies 

iFor details of these various taxes, see my monograph on Financ% 

'. ( 





Vi . ■« 



usually only to state, not to local, taxation. So that in- 
surance companies are almost everywhere subject to the 
ordinary local taxes. 

From the above summary it appears that life insurance 
companies, especially mutual companies, are in general 
treated differently from other insurance companies. The 
reasons are obvious and well founded. Yet in Texas and 
Vermont life insurance companies are taxed more heavily 
than others. 

8. Hailroads. 

A compl«^te history of the development of railway taxation 
would occupy an entire book ; hence, it will be possible here 
to say only a few words about some of the typical common- 

In Pennsylvania, railroads were included in the general 
tax law of 1840, and were assessed on their personalty and 
on their dividends. In 1844 the tax on personalty was 
abandoned, but the general corporation tax on capital and 
dividends continued with some modifications for over two 
decades. In 1860 a special tonnage tax was levied on trans- 
portation companies at the rate of two, three and five cents 
per ton of freight carried, and an additional tax of three- 
quarters of one per cent was laid on their gross receipts. 
The former was declared unconstitutional by the federal 
courts, and as a result, by the act of 1874, all transportation 
companies were taxed only on their capital stock, at the rate 
of nine-tenths of a mill for each one per cent of dividends, 
or at the rate of six mills if there were no dividends. In 
1879 the dividends and earnings taxes were slightly changed, 
and the law was passed which, with the amendments of 1885, 
1889 and 1891, is in force to-day. In New York, railroads 
were subject to the general property tax until 1880, ^^hen a 
law was enacted which with some modifications is now in 
force. In New Jersey, railroads were subject to the general 
property tax until 1873, when a tax was imposed at the rate 




of one-half of one per cent on their cost, equipment and 
appendages. Three years later the cost tax was abandoned, 
and a tax at the same rate was imposed on the true value 
of the roads. This system prevailed until 1884, when the 
present method was introduced. 

In Connecticut, the law requiring certain stock companies 
to make returns of the stock owned by individuals was 
extended in 1846 to railroads. Three years later every 
railroad that had paid a dividend in the preceding year 
was required to pay one-half of one per cent on the market 
value of the shares held by non-residents ; but if the rail- 
road was partly out of the state, the tax was to be pro- 
portioned to the mileage in the state. This system worked 
so well that in 1850 it was extended to resident stock- 
holders, and was made one-third of one per cent in 
lieu of all other taxes. In 1862 the rate was increased, 
but the provision was inserted that the stock should not 
be assessed at less than ten per cent of the par value. 
In 1864 the outlines of the present system were drawn by 
requiring the companies to add to the valuation of the stock 
the market value of the funded and floating indebtedness 
less the cash on hand, and to pay one per cent on this valua- 
tion in proportion to the mileage in the state. In 1871 it 
was provided that if the railroad paid any local tax this 
might be deducted from the state tax. In 1881 a deduction 
was made from the taxable valuation for such portion of 
its debt as was contracted for stock taken in other roads. 
In 1882 the funded and floating debts and bonds were to 
be valued at par unless the market value was below par. 
And in 1887 the present law, with substantially the same 
provisions, was enacted. 

After this hasty glimpse at some of the typical forms of 
development, let us now study the actually existing chaos. 
Chaos we say, because the remark of the railroad tax com- 
mittee of 1879 still holds good to-day, that "there is no method 
of taxation possible to be devised which is not at this time 
applied to railroad property in some part of this country. 







A more discouraging example of general confusion could 
hardly be imagined."^ 

As stated above, fifteen, or including Mississippi, sixteen 
commonwealths have abandoned property as the basis of 
the tax; and of these, the majority now assess the rail- 
roads on earnings. Nine levy a tax ranging from one- 
quarter of one to five per cent on gross earnings only.^ 
Wisconsin, however, combines in some cases a mileage 
tax with the earnings tax. Washington until 1888 also 
had an earnings tax. Three commonwealths — Massachu- 
setts, New York and Pennsylvania — include railroads in 
the general corporation tax, but New York and Penn- 
sylvania levy an additional tax on gross earnings (one- 
half and eight-tenths of one per cent respectively), while 
Massachusetts also levies a commission tax on gross earn- 
ings in proportion to mileage, and in the case of corpora- 
tions to construct railroads in foreign countries substitutes 
a tax of one-twentieth of one per cent on capital stock. 
Mississippi taxes railroads at a fixed sum per mile, accord- 
ing to the reputed wealth or earning capacity of each 
road, in addition to the property which is declared to 
include the value of the franchise. Delaware levies six 
separate taxes, vizr, on capital stock (one per cent), net 
earnings (ten per cent), locomotives (f 100 each), passenger 
cars (#25), freight cars (flO) and passengers (ten cents 
each) ; but the companies may pay a gross sum in commuta- 
tion of the passenger tax. In New Jersey, the law directs 
the board of assessors to ascertain the value of the main 
stem, of the other real estate and of the tangible personalty. 
This would really be a property tax were it not that the 
assessors are further directed to ascertain the value of the 
franchise. The whole question of corporate franchise will 
be deferred to the succeeding chapter; but it may be here 

1 TaxaHon of Bailroads and Railroad Securities^ p. 1. 

2 Georgia, Maine, Maryland, Michigan, Minnesota (where companies may 
commute in this way for the property tax), North Carolina, North Dakota, 
Vermont and Wisconsin. 



stated that the New Jersey assessors have endeavored to 
estimate the franchise by taking sometimes an arbitrary 
proportion (sixty per cent) of the surplus of the value of 
the capital stock and total indebtedness over the value of 
the tangible property, sometimes a percentage (twenty per 
cent) of the gross earnings. The railroads must pay one- 
half of one per cent on this entire valuation, both property 
and franchise, for state purposes, and in addition they pay 
to the state a tax at the local rate on the value of their 
real estate in each taxing district outside of the main stem. 
This portion of the tax, however, which is really a prop- 
erty tax, cannot exceed one per cent of the value, and is 
returned by the state to the taxing district. 

In Connecticut, railroads are required to pay a tax of 
one per cent on the valuation of their capital stock and on 
the par value (or on the market value, if below par) of their 
funded and floating debt above the amount in the sinking 
fund. If only part of a railway is in the state, the company 
pays on such proportion of the above valuation as the mile- 
age in the state bears to the total mileage, omitting the 
value and length of such branch lines as are of less than 
one-quarter the average mileage value of the trunk line. 
The alternative law of Vermont is very much the same. 
The old law taxing railroads on their gross receipts was 
declared unconstitutional. The new law of 1890 taxes 
them seven-tenths of one per cent on an appraised valu- 
ation equal to the market value of the bonds and stock, 
consideration being taken in each case of the value of the 
corporate franchise. The appraisement is made partly on 
gross, partly on net earnings. If the railroad does an in- 
terstate business, the total valuation is divided by the num- 
ber of miles of the main line to get the average value per 
mile, and this is then multiplied by the mileage within the 

Among the commonwealths which assess railroads on 
their gross earnings, five grade the tax according to the 
age of the road or to the amount of the earnings. The 



I I 



former Vermont tax was also graduated. The rates are 
as follows : — 

Maine (excise tax): Earnings of 81500 per mile and under, \ of 1%; 

thence increasing by \ of 1% for every $750 up to the maximum 

of 3^%. 
Michigan (specific tax) : For the first ^000 per mile, 2%; from |2000 to 

$4000, 2\%\ from $4000 to $6000, 3%; from $6000 to $8000, Z\%\ 

over $8000, ^\ 
Minnesota: First three years, 1%; next seven years, 2%; afterwards, 3%. 
North Dakota : First five years of operation, 37o ; afterwards, 2%. 
Wisconsin (license fees) : Less than $1500 per mile, $5 per mile ; $1500 

to $3000, the same plus 2% on the excess over $1500; $3000 and 

upward, 4%. But all railroads upon pile or pontoon bridges are 

taxed uniformly 2%. 

An important point in the treatment of railroads is the 
extent to which these new methods of state taxation have 
superseded local taxation. In North Dakota and Minne- 
sota, the special railroad tax is declared to be in lieu of 
all other taxation, state or local. This is virtually, though 
not technically, true in Connecticut ; for if the real estate 
not used for railroad purposes is taxable locally, the valu- 
ation on which the state tax is based is reduced by the 
amount of local taxes. It was also true of Washington, 
when it had a gross earnings tax. In six of the remaining 
cases — Delaware, Maine, Maryland, Massachusetts, Mis- 
sissippi and New York — the local bodies may also tax rail- 
road property, but with some restrictions. In Maine, only 
the buildings of the railroad and the lands and fixtures 
outside the located right of way are taxable locally. In 
Massachusetts, the railroads are taxable locally only on 
their real estate (except a belt of land adjoining the road- 
bed with the structures connected with it) and machinery. 
But as the value of this property is deducted from the 
total valuation for the commonwealth tax, Massachusetts 
belongs, strictly speaking, in the preceding category. In 
Mississippi, only cities and towns have the privilege of 
taxing railroad property in general, but all local divisions 
may tax that part which is not used for railroad pur- 



poses. In New York, under the general corporation-tax law, 
the real estate of railroads is taxable for state purposes ; and 
both realty and personalty are taxable for local purposes. 
But only the value of the realty is deducted from the total 
valuation of the stock for the commonwealth tax. Finally, 
in the five remaining states — Michigan, New Jersey, Penn- 
sylvania, Vermont and Wisconsin — the railroads are subject 
to a local tax only on that part of their property not used for 
railroad purposes. In New Jersey, this local tax must not be 
confounded with the " tax on the taxing districts " described 
above, which is in reality also a local tax. In Pennsylvania, 
all property necessary to the successful operation of the rail- 
road including stations, water tanks, ete,^ but not city offices, 
has been held to be a part of the franchise, and therefore not 
locally taxable. In Wisconsin railroad property, even though 
used for railroad purposes, may be assessed in cities and vil- 
lages, for local improvements only. 

Besides these fifteen commonwealths which have broken 
away from the old property tax, four states which retain 
this as the main feature add other taxes not based on prop- 
erty. Thus, in Alabama we find a "license tax" on gross 
earnings, to defray the salaries of the commission ; in North 
Carolina a privilege tax of one-half of one per cent on gross 
receipts (if only the personal property is taxed) and a fran- 
chise tax, at the general rate of the property tax, assessed 
on the value of the franchise as estimated by the board of 
appraisers ; in Texas a tax of one-quarter of one per cent on 
gross passenger earnings ; in Virginia a tax on gross earn- 
ings, to pay the salaries of the commission, and a tax of one 
per cent on net income. Again, some of the Southern com- 
monwealths impose special licenses on the railroads. Finally, 
we find in a few commonwealths, like Delaware, Illinois, 
New Jersey, North Carolina and Pennsylvania, special taxes 
levied on special railroads. 

This survey will suffice for a picture of the existing chaos. 
The theory and criticism must be left to a subsequent 






4. Other Transportation and Transmission Companies, 

The taxation of telegraph companies has undergone au 
evolution similar to that of railroads, although not quite so 
complicated. In the majority of commonwealths, telegraph 
property is included by the local assessor in the general 
tax list and pays the regular rate of the general property 
tax. In a few cases, as in Florida, Iowa and Ohio, it is 
separately assessed by special officers, but still pays the 
general rate. In a few other cases again, as in Maine and 
New Hampshire, telegraph companies pay on the value of 
their property, but at a fixed rate which remains constant 
from year to year. In twenty-one commonwealths, how- 
ever, telegraph companies pay a special tax based not on 
property but on other elements. Here again, as in the case 
of other corporations, the special tax is in some states appli- 
cable only to state taxation, while the local tax is still assessed 
on the general property. In eleven cases ^ the system of 
taxing gross receipts prevails, although applicable in West 
Virginia only to foreign companies. Six commonwealths 
tax the companies on mileage, the rate generally decreasing 
with each additional wire.^ Mississippi imposes a privilege 
tax of $3000 ; or if the line is less than one thousand miles 
long, makes the tax one dollar per mile. Tennessee grades 
the tax according to the population of the towns ; Virginia 
levies a property tax, a one per cent gross earnings tax, and 
a license tax of $250 ; Alabama, a privilege tax of $500, 
together with a tax of one dollar per mile of line. Indiana 
takes as a basis for assessment the value of the capital stock 
plus the bonded debt, if any, deducting the assessed value 
of real estate situated outside the state. After taking from 
this valuation a part, proportionable to the ratio which the 
mileage in the state bears to the total mileage, the board 

1 Georgia, Louisiana, Maryland, New Jersey, New York, North Carolina, 
Ohio, Pennsylvania, Rhode Island, Vermont and West Virginia. 

2 Connecticut, Delaware, Florida, Kentucky, North Dakota and WiS' 





deducts the real estate and machinery taxable locally, and 
divides the remainder by the mileage in the state. The 
resulting value per mile is then taxed at the usual rate of 
the property tax, each county getting its share. 

The tendency seems to be toward the mileage tax ; for 
several commonwealths, like Alabama and Connecticut, which 
formerly levied a gross receipts tax, have now substituted 
the tax on mileage. In Vermont also the telegraph com- 
panies may elect to pay, in lieu of the tax on gross earnings, 
sixty cents per mile of pole and one line of wire, plus forty 
cents per mile for each additional wire. On the other hand 
Minnesota, which formerly (since 1867) levied a mileage 
tax, changed it in 1887 to a gross receipts tax, and in 1891 
again changed to a tax on property, now assessed by a board 
of equalization. These instances show the utter lack of 
uniformity or principle in American taxation. 

Telephone companies have lately been subjected to special 
taxes in all but one of the same commonwealths. In ten 
cases, the tax is the same as that on telegraph companies ; ^ 
in the remaining cases it is slightly different. Thus, in 
Connecticut it is twenty-five cents per mile of wire and 
seventy cents for each telephone transmitter ; in Florida, 
it is ilOO on each telephone plant in each county, 
unless the line is less than twenty-five miles long, when 
it is only |25 ; in Georgia, it is one dollar for each tele- 
phone station or box ; in Kentucky, one-quarter of one 
per cent on gross receipts ; in New Hampshire, the usual 
property tax ; in Mississippi, it is graded according to the 
number of subscribers ; in Texas, twenty-five cents for each 
telephone ; in Wisconsin, a " license fee " of one and a half 
per cent on gross receipts ; and in Virginia, a general prop- 
erty tax, a license tax of $100 and a gross earnings tax of 
one per cent. 

Express companies are subject to much the same taxes 
as telegraph companies. Fourteen commonwealths tax them 

1 Indiana, Iowa, Louisiana, Minnesota, New Jersey, New York, North 
Carolina, Pennsylvania, Bhode Island and Vermont. 


• > 






H * 



on gross receipts. ^ In some states, as in Maryland and West 
Virginia, the gross receipts tax applies only to foreign com- 
panies, the domestic companies being subject to the general 
property tax. As a matter of fact, however, almost all the 
express companies are foreign companies. In New Mexico 
and South Carolina they are taxed on net receipts. In many 
of the Southern states they pay a license or privilege 
tax either fixed or according to mileage, sometimes in 
lieu of the property tax, sometimes in addition to the prop- 
erty tax, and sometimes in addition to other taxes. Thus in 
Florida there is a tax of il500 per annum ; in Kentucky, 
a license tax of 1500 to f 1000 in addition to the local prop- 
erty tax ; in Mississippi, a privilege tax of $500, together 
with a tax of one dollar for each mile of railway along which 
they operate, and a local property tax ; in Tennessee, a tax 
of from $1000 to $2000 according to mileage ; in Alabama, a 
tax of one dollar per mile, if the line does not exceed five 
hundred miles in length, or beyond that, from $1000 to 
$5000 according to mileage. In Virginia they pay a 
license tax of $300 to $500 according to mileage, a prop- 
erty tax and an income tax. In Missouri they pay the 
property tax on their tangible property in addition to a tax 
of one and a quarter per cent on gross receipts within the 
state, deducting the amount paid by them to railroad or 
steamship companies for transportation. In Indiana a some- 
what similar law was changed in 1891, so that express 
companies are now taxed on a valuation ascertained, as in 
the case of telegraph companies, according to mileage as 
explained above. In Arkansas the capital stock is also as- 
sessed according to mileage. In New Hampshire express 
companies may pay, in lieu of the "license" on gross re- 
ceipts, a fixed sum of five dollars per mile. 

From the fact that the large express companies are gener- 
ally unincorporated, the question has recently arisen whether 

^ Alabama, Connecticnt, Delaware, Georgia, Louisiana, Maine, New Hamp- 
shire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode 
Island and Vermont. 



they are liable to the corporation tax. In Vermont and Penn- 
sylvania joint-stock companies are expressly included. In 
New Jersey the tax law applies only to corporations. In New 
York express companies have been declared liable to the state 
corporation tax because the statute expressly applies to joint- 
stock companies ; ^ but under the provisions of the revised 
statutes imposing a tax on "all monied or stock corporations," 
which still governs local taxation in New York, it has been 
held that express companies are not liable.^ There is, of 
course, no good economic reason for their exemption. 

Finally, we may mention the palace and sleeping-car com- 
panies. The special tax on these companies, which is found 
in a few commonwealths, is based on various elements. In 
Florida, Michigan, New Jersey, New Mexico, New York, 
North Dakota, Pennsylvania and Vermont, it is on gross 
receipts. In Arkansas, Texas and Virginia, it is on capital 
stock according to mileage ; but in Virginia there is an addi- 
tional tax on income. In Georgia and Iowa, it is proportioned 
to the number of cars and the miles run; in Nebraska it is 
proportioned not only to the number of cars, but also to the 
average time employed within the state. In Indiana, the 
method of taxation is similar to that described above for 
telegraph companies. In a few of the Southern states, like 
Alabama and Tennessee, license and privilege taxes of fixed 
amount are imposed; but in Alabama there is an additional 
mileage tax. In some cases, like Georgia and Missouri, rail- 
road companies are taxed for their sleeping cars, but may 
then recoup from the sleeping-car companies. 


5. Miicellaneous Corporations. 

In addition to the taxes already mentioned, a few com- 
monwealths levy taxes, mostly of very recent date, on 
other specified corporations. In order to make the survey 
complete, they will be noted here. We find in Alabama 
a tax of one per cent on the gross receipts of cotton 

1 117 N. Y. 136. a 133 N. Y. 279. 

I ' 




pickeries and seed-oil mills, and on the gross income of 
gas-works, waterworks, electric-light companies, ferries, 
toll-bridges, public mills and gins, and cotton compresses ; 
but as the tax is levied only after deducting the expenses 
for carrying on such business, it is really on net income. 
In Connecticut, there is a tax of two per cent on the 
gross receipts of rolling-stock companies, and a so-called 
"tax on investment companies," consisting of one per 
cent on choses in action sold or negotiated, deducting non- 
taxable bonds registered with the state treasurer. The tax 
on railroads has also been extended to street railways. In 
Florida, electric-light, water and gas-light companies must 
pay a license tax of flOO for each plant in each county. 

In Kentucky, we find a tax on the stock of turnpike com- 
panies at the rate of seven per cent on net dividends ; also 
a tax on street railroads; a "tax on city corporations" 
(which is in reality simply a tax on coffee-house licenses 
in Frankfort); a graduated tax on gas and electric-light 
companies, waterworks, cotton compresses, cotton pickeries, 
slaughter houses, liquor distilleries and tobacco factories; 
and a two per cent tax on the gross premiums of foreign 
building and loan associations. In Louisiana, there is a 
tax on the gross receipts of horse railroads. In Maine, 
there is a similar tax, but with a graduated scale of one- 
tenth of one per cent for every thousand dollars; a fran- 
chise tax on trust and loan associations like that on savings 
banks described above ; and a tax of one-quarter of one per 
cent on the monthly capital dues of building associations. 

In Massachusetts, we find a tax of one-twentieth of one 
per cent on the capital stock of companies for the purpose 
of coal mining or extracting carbonaceous oils ; but if the 
company is incorporated in the state, the tax is one of 
four per cent on the net profits. We find there also a 
"gas commissioners tax" on the gross earnings of gas com- 
panies ; and a " gas light companies tax " on the appraised 
valuation of their property to defray the expenses of the 
inspectors of gas meters. In Michigan, the special tax on 



mining, smelting and refining companies of seventy cents per 
ton of copper, one cent per ton of iron, and five mills per 
ton of coal obtained, with a real estate tax on mining com- 
panies on the excess over six hundred and forty acres, was 
repealed in 1891; but there now exists a tax of two per cent 
on the gross receipts of special freight lines or car-loaning 
companies, and a like tax on the gross receipts of surety 
and guaranty companies. In Minnesota, mining corpora- 
tions must pay in lieu of all other taxes a commutation 
tax of fifty cents per ton of copper, and one cent per ton 
of coal mined; and there is also a reciprocal law for building 
and loan associations. In New Hampshire there is a tax 
of one per cent on the stock of building and loan associa- 
tions, and a tax like that on savings banks on the capital 
and deposits of trust companies. In New Jersey there is 
a tax on oil or pipe-line companies of eight-tenths of one 
per cent on the gross receipts; and on gas and electric 
light companies of one-half of one per cent on gross re- 
ceipts, and five per cent on dividends in excess of four 
per cent. There is also a tax of two per cent on the gross 
receipts of cable companies. In New York we find a " pool 
tax " on racing associations — five per cent of the gross re- 
ceipts for admission. In Pennsylvania electric-light, street 
passenger railway, pipe-line, slack water navigation, canal 
or other transportation and transmission companies pay 
eight-tenths of one per cent on gross receipts, in addition 
to the general corporation tax. In Rhode Island there is 
a tax of one-quarter of one per cent on the deposits of 
trust companies. In Vermont we find a tax of one per 
cent on building and investment trust companies, and .of 
two per cent on the gross receipts of steamboat, car and 
transportation companies (other than railroads) incorpor- 
ated in the state, as a tax alternative to the one described 
above. In Virginia, steamship and transportation companies 
are taxed on their property and also at the rate of one 
per cent on their income. Finally, in some of the South- 
ern commonwealths, license fees or "privileges" are im- 




posed on corporations following certain specified lines of 
business. In almost all of these commonwealths the taxes 
referred to are state taxes, while for local purposes the cor- 
porations are usually still subject to the general property- 
tax, or to the tax on real estate and capital stock. 

The third movement away from the property tax has been, 
as noted above, the introduction of a tax applicable to all 
corporations in general. We come thus to 

6. Tht Q-eneral Corporation Tax. 

Here again Pennsylvania took the lead, for in that state 
the tax is far older than might be imagined from its recent 
introduction into other commonwealths. We have already 
seen that in 1824 Pennsylvania imposed a tax on the net 
dividends of banks. In 1836 the tax was extended to iron 
companies, at the rate of eight per cent on all dividends 
exceeding six per cent. In this provision can be found the 
germ of the later laws. The first general corporation tax, 
imposed in 1840, provided that "banks and all corpora- 
tions whatever " which declared a dividend of one per cent 
should pay " in addition to all present taxes " one-half mill 
for each dollar of the dividend or profit, and an additional 
one-half mill for every additional one per cent of divi- 
dend. In 1844, however, an act was passed which sketched 
in broad outline the path of future development. Accord- 
ing to this law all domestic corporations which made or de- 
clared a dividend or profit of at least six per cent paid a tax 
on capital stock of one half mill for each one per cent of divi- 
dend ; but if the dividend was less than six per cent, the tax 
was three mills on the dollar. This law continued until the 
act of 1859 provided that the three mill tax should be paid 
only if no dividend was declared ; but that in case of any 
dividend (not, as before, a six per cent dividend) the tax 
should be one-half mill on the capital stock for each one per 
cent of dividend. In 1864 it was provided that corporations 



not paying to the state a tax upon dividends should pay three 
per cent on net earnings. The consolidated act of 1868 ex- 
cepted from the general corporation tax only banks, savings 
institutions and foreign insurance companies (all of which 
were separately taxed), but imposed a tax of three per cent 
on the net earnings or income of all corporations, except those 
liable to the tonnage tax, i.e, the transportation companies. 

The important feature of this law, however, was that 
the corporation tax was now made applicable to all com- 
panies incorporated or doing business in the state, i.e. to 
foreign as well as to domestic corporations. Only from 1868, 
therefore, was the Pennsylvania tax a general corporation 
tax. The general law of 1874 made no change except in 
respect to transportation companies as mentioned above, 
and with the further exception that coal companies were to 
pay a franchise tax of three cents per ton transported. In 
1879 the line of division in the tax was again drawn at divi- 
dends of six per cent — that is, the principle of the law of 
1859 was abandoned and that of 1844 reinstated. Limited 
partnerships, except those organized for manufacturing or 
mercantile purposes, were put on the same footing as cor- 
porations; and the tonnage tax on coal companies was limited 
to 1881, after which it was to cease. Manufacturing cor- 
porations with certain exceptions were exempted from taxa- 
tion for state purposes, and a loan tax of four per cent was 
imposed, applicable also to the bonds of corporations. In 
1885 the latter was reduced to three per cent. In 1889 the 
rate was fixed at one half mill for each one per cent of 
dividend, if dividends amounted to six per cent, and at 
three mills when dividends were less than six per cent. 
Finally, in 1891 this plan was abandoned and the present 
amendments were adopted. 

Under the law as it now stands in Pennsylvania, the "tax 
on corporation stock " applies to all corporations, joint-stock 
associations and limited partnerships doing business in the 
state or having any portion of their capital invested therein, 
except banks and savings institutions, foreign insurance com- 



I 1 

1 1 

I' I 



•• ( 

panics, and manufacturing companies organized exclusively 
for manufacturing purposes and actually carrying on manu- 
facturing within the state. Corporations engaged in the 
brewing or distilling of malt or spirituous liquors, and such 
as enjoy and exercise the right of eminent domain, are not 
included in this exception. The rate is five mills on each 
dollar of the actual value of the whole capital stock of all 
kinds. This value, ascertained by appraisement, must not be 
less than the average price for which the stock has been sold 
during the year, nor less than the value indicated by the net 
earnings or by the profit in dividends or by what has been 
carried to the surplus or sinking fund. If any profit has 
been added to the sinking fund, it is treated as if it had been 
devoted to dividends, unless it is set apart expressly for the 
payment of debts. In the case of fire and marine insurance 
companies the rate is three mills on each dollar of capital 
stock. In addition to this tax on corporation stock, there is 
a nominal tax of three per cent on the net earnings of private 
bankers and brokers, unincorporated banks and all corpora- 
tions except those liable to the previous tax or to the tax on 
gross receipts. The only corporations which would be liable 
under this provision are banks and manufacturing corpora- 
tions; but the latter, with the exceptions just noted as 
liable to the tax on corporation stock, are now expressly 
exempt from all taxation ; and the former, by electing 
to pay eight mills on the par value of their capital stock, 
secure exemption from all other taxation except on their 
real estate. Thus the net earnings tax does not apply to 
corporations at all. If the banks do not elect this eight mills 
tax, the market value of the stock is assessed to the stock- 
holders and taxed four mills, and the banks are further subject 
to local taxation. State banks must pay in addition a small 
tax — five dollars for banks with a capital of f 100,000, 
and five dollars additional for each $100,000, together 
with a charge of two per mill for each $1000 of assets — to 
defray the expenses of bank examination. It has already 
been noted above in the proper connection that transporta- 



tion, transmission, electric-light and insurance companies 
pay a tax on gross receipts or premiums in addition to the 
general corporation tax. 

In addition to the tax on capital stock, Pennsylvania 
imposes a "tax on loans," which exacts four mills on the 
dollar of all interest paid on any scrip, bond or certifi- 
cate of indebtedness issued by any private corporation, and 
on all public loans (except those of Pennsylvania and of the 
United States). This tax has been declared unconstitu- 
tional when applied to mortgages held by, or in the hands 
of, corporations. The decision was subsequently formulated 
into the law that corporations and associations liable to the 
capital stock tax shall not be required to pay any further 
tax on mortgages, bonds or other securities belonging to 
them, and which constitute any part of their assets included 
within the appraised value of their capital stock. But if 
they hold these bonds in a fiduciary capacity, they are liable. 
On the other hand, so much of the tax as is imposed on 
the loans made by corporations, Le. on corporate obligations, 
has been upheld as a proper exercise of the legislative 
authority and as not in conflict with any provision of the 
federal constitution. It is deemed to be in effect a tax on 
the bondholder, not on the corporation, although the cor- 
poration is required to advance the tax and deduct it from 
the interest. The treasurers of corporations therefore pay 
the tax on all their bonds or obligations which are held by 
residents, and then deduct the tax from the interest due. 
Pennsylvania, moreover, taxes public, as well as private, 

This general corporation tax, it is very important to note, 
is in lieu of all local taxation. In Pennsylvania, therefore, 
corporations subject to the capital stock tax are not, with 
some exceptions noted below, locally taxable. 

The law of 1885 exempted manufacturing corporations 
(with certain exceptions) from all taxation for state purposes; 
but it was held that only that part of the capital of a manu- 
facturing company which was invested in the plant actually 






' I 



i. : ' 

1 1 






necessary for the manufacture of its product could be ex- 
empted, and that the capital of such companies invested 
in mines for the production of coal to be used in the process 
of manufacturing, or any other capital similarly invested, was 
taxable. The laws of 1889 and 1891, however, provide for 
the exemption of those companies only which are organized 
exclusively for manufacturing purposes. Manufacturing 
companies are held to be limited to those that produce 
material substances.^ In regard to the tax on loans, since, 
as we have just seen, it is held to be not upon the corpora- 
tion, but upon the moneys of the bondholder, manufacturing 
corporations, however, are liable equally with others. 

Outside of Pennsylvania the general corporation tax is 
found only in New York; although in Maryland, Massa- 
chusetts and New Jersey there are general taxes on domestic 
corporations, and in a few other cases there are what may be 
called in one sense general taxes on corporations. 

In New York the general corporation tax came later; 
for not until 1880 was a law passed which was based on 
the Pennsylvania act. This tax, as slightly altered at 
various times, is declared to be levied on the corporate 
franchise or business of all corporations, joint-stock com- 
panies or associations, except savings banks and institutions 
for savings, fire and marine insurance companies, banks, 
foreign insurance companies, agricultural and horticultural 
companies, and manufacturing and mining corporations 
wholly engaged in carrying on manufacturing or mining 
in the state. These exceptions, however, do not cover trust 
companies, gas companies, or electric or steam heating, light- 
ing or power companies, while banks, fire and marine 
insurance companies, and foreign insurance companies are 
separately taxed. The only companies actually exempted 
from taxation are, therefore, domestic life insurance com- 
panies, agricultural and horticultural companies, and, with 
the exceptions noted, manufacturing and mining corpora- 

1 For the decisions here, as well as in the other states, see the chapter iu 
the work referred to on page 137. 



tions. The rate is just one-half that of the former Penn- 
sylvania tax, i.e. one-quarter mill upon each dollar of the 
capital stock for each one per cent of dividends which 
amount to at least six per cent ; but when dividends fall 
below six per cent the rate is one and a half mills. By 
exception in the case of hotel companies paying dividends 
less than six per cent, the tax is assessed on the excess of 
their capital stock over the assessed valuation of their real 
estate. Corporations subject to this tax are exempted from 
all further state taxation except on their real estate ; but 
they are liable to local taxation on their whole property, 
both real and personal, according to the primitive methods. 
The additional taxes on other corporations have already 
been described under the appropriate heading. 

In Massachusetts, the general corporation tax dates from 
1864. In 1863 indeed, a law was enacted which taxed divi- 
dends paid by corporations to non-resident stockholders; 
but this was pronounced unconstitutional, and was replaced 
by the law now virtually in force. This tax is declared to be 
levied on the corporate franchise of all domestic corporations 
except banks and coal and mining companies, which are 
separately provided for; and is imposed on the market 
value of the shares of their capital stock, deducting the value 
of the real estate and machinery, which are locally taxable. 
The rate is determined by an apportionment of the whole 
amount to be raised by property taxes in the commonwealth 
during the year, upon the aggregate valuation of all the 
towns and cities for the preceding year. Every munici- 
pality is then credited with the proportion of the tax repre- 
sented by the number of shares held by residents of that 
place, the commonwealth retaining only that proportion of 
the tax which corresponds to the stock of non-residents. 
In the case of railroads, only such proportion of the valuation 
of the stock is assessed as the length of that part of the 
road lying within the commonwealth bears to its total length. 
A very important point to be noticed is that in Massachu- 
setts the tax applies only to domestic corporations, not as 

I •» 









! / 

in New York and Pennsylvania to foreign corporations. 
Massachusetts taxes the latter only on their property 
actually situated in the state ; but, on the other hand, as 
we shall see later on, taxes shareholders in foreign corpo- 
rations, while exempting shareholders in domestic corpora- 
tions from any additional tax. Massachusetts therefore 
has in reality no general corporation tax. 

In New Jersey, the tax on " miscellaneous corporations " 
dates from 1884, and is described as a " license for the cor- 
porate franchise." As amended in 1892, it applies to all 
corporations except railroads and canals (both of which are 
taxed separately), banks, cemeteries, religious, charitable or 
educational associations, and manufacturing or mining com- 
panies at least fifty per cent of whose outstanding capital 
is invested in business in the state. If the latter have less 
than fifty per cent of their capital so invested, they pay 
the tax on capital stock mentioned below, but may deduct 
the assessed value of the property so used in manufacture or 
mining. Telegraph, telephone, cable, express, parlor car, 
gas, electric-light, insurance, oil and pipe- line companies, as 
we have seen above, are taxed under this law in a special 
manner, i.e. on receipts, premiums and dividends. All other 
companies included under the head " miscellaneous corpora- 
tions," pay a yearly '' license fee " or " franchise tax " of 
one-tenth of one per cent on the capital stock issued and 
outstanding up to three million dollars ; one-twentieth of 
one per cent on the capital between three and five millions ; 
and fifty dollars additional for each one million dollars capi- 
tal in excess of five millions. This tax applies, except in the 
case of insurance companies, only to domestic corporations. 
But it is to be borne in mind that railroad companies are not 
included in this tax on miscellaneous corporations. 

In Maryland, the " tax on incorporated institutions " dates 
in a certain sense from 1841, when all domestic corporations 
which declared dividends were required to return the stock 
owned by non-residents, and to pay the state general prop- 
erty tax thereon to the collector of the place where the 



corporation or its chief office was situated. In 1842 this 
obligation was extended to stock owned by residents ; and 
in 1847 the corporations were required to pay the tax whether 
or not they had earned dividends. The county tax was, more- 
over, still collected from the shareholder. Early in the seven- 
ties the system was slightly changed ; in 1878 the present 
method was introduced, and the office of tax commissioner 
created. This tax is levied on the capital stock, or, if there 
be none, on the property and assets of all corporations incor- 
porated or doing business in the state, and of all joint-stock 
companies doing business in the state, except steam railroads 
and savings institutions, both of which are taxed separately. 
Deductions are made from this valuation for the assessed 
value of real property (separately taxed), for the capital 
invested in property which already pays taxes, for the non- 
taxable securities held, and, in the case of building associa- 
tions, for mortgages on taxable property. The corporations 
pay at the rate of the general property tax, on only so much 
of the stock as is owned by residents of the state. They are 
also required to pay, under a law dating from 1847, the general 
property tax on all interest-bearing bonds, certificates, or evi- 
dences of debt, owned by residents, deducting the amount 
from the interest due the bondholders. The corporation taxes 
in Maryland, therefore, have only a very limited scope. 

In Kentucky, we find since 1892, in addition to the prop- 
erty tax, a franchise tax on all corporations or associations 
"having or exercising any special or exclusive privilege or 
franchise not allowed to natural persons, or performing any 
public service." This would not include ordinary industrial 

In Illinois, all corporations except railroads (which are 
separately taxed), manufacturing, newspaper and stock- 
holding companies are assessed on the excess of their capital 
stock and debt over and above the value of their tangible 
property. But the capital stock tax is regarded as a part of 
the general property tax, and figures among its receipts. 
It applies, moreover, only to domestic corporations, for 

/ »1 






foreign corporations are taxable only on their tangible 
property in the state. 

Finally, in a few other states, like Alabama, Georgia, 
Indiana, Kansas, Kentucky and North Carolina, corpora- 
tions in general are taxed at the ordinary rate of the prop- 
erty tax on the value of the capital stock over and above the 
value of the realty and tangible personalty. This is, how- 
ever, practically only a modification of the general property 
tax. In- only a few of these states, like Indiana, where 
transportation and several other companies are taxed in a 
special way, as described in the preceding pages, is pro- 
vision made for the taxation of the franchise. In Alabama, 
there is a tax dating from 1866 on the dividends of all cor- 
porations doing business in the state; but since the divi- 
dends are simply classed as personal property, the tax yields 
almost nothing. There was formerly also a tax on the in- 
comes of corporations, but this seems to have been rarely 
assessed and was abolished in 1884. 

It may also be mentioned that Virginia had a general 
corporation tax for a short period. In 1843 a tax of two 
and a half per cent was imposed on the dividends of all 
corporations, except as to the stock held outside of the 
state, but in 1846 the tax was reduced, and was then allowed 
to disappear. During the Civil War, again, a tax was im- 
posed on steamboat companies and " companies of a similar 
character." The law defined capital as stock subscribed, 
money deposited, bonds, certificates and other evidences of 
debt, so that the tax was thus really laid on stock plus total 

We see then that only in Pennsylvania and in New York 
are there general corporation taxes applicable to practically 
all foreign as well as to domestic corporations. In Mary- 
land the corporation tax, although nominally applicable to 
foreign, is in reality levied almost exclusively on domestic 
companies. In the other cases, the law applies in terms 
only to domestic corporations, except that in Kentucky it 
includes certain classes of domestic and foreign corporations. 





In Maryland and Massachusetts again, the tax is really a 
general property tax on shares of stock, although paid by 
the corporation. Maryland and Pennsylvania are the only 
states which levy taxes on corporate bonds, although virtu- 
ally only on the bonds of domestic corporations in the hands 
of residents. Finally, only in Pennsylvania is the corpora- 
tion tax in lieu of local taxation ; and, on the other hand, 
only in Kentucky is the corporation tax payable to local 
bodies also, in addition to the state corporation tax and to 
the state and local property taxes. The important questions 
that have arisen in connection with these points will be dis- 
cussed below. 

A mistake often made is that of confounding with the 
corporation tax what may be called the tax on corporate 
charters. This is in reality a license fee charged for the 
privilege of incorporation or of increasing the capital stock 
of a company, and it is generally either a fixed lump sum, or 
a percentage of the amount of the capital stock. It is found 
in sixteen commonwealths, most of which already possess a 
corporation tax proper. In Alabama and in Illinois, it is 
called "license fees." In Connecticut, it applies only to for- 
eign corporations seeking a charter in the state, and is termed 
the " tax on corporate franchise," although quite unlike the 
franchise taxes in other commonwealths; in Kentucky, it 
is called the " tax on organization " ; in Maine, the '* tax 
on new corporations" ; in Maryland, "bonus on stock"; 
in Missouri, the " corporation tax " or the " tax on corpora- 
tions incorporating " ; in New Hampshire, " charter fees " ; 
in New Jersey, the " tax on certificates of incorporation " ; 
in New York, the " organization of corporations tax " ; in 
Ohio, " organization fee " ; in Pennsylvania and Rhode 
Island, " bonus on charters " ; in Texas, " franchise tax " 
in Vermont, " corporation license tax " ; in West Virginia, 
where it is paid annually, "license tax on charters and 
certificates of corporations." In some of these cases, like 
Kentucky, New York and Pennsylvania, the tax is payable 
also on a subsequent increase of capital stock. In a few states, 












like Texas, it is levied on foreign as well as on domestic 
corporations ; while in Connecticut, it is levied only on for- 
eign corporations. Finally, some states follow the New York 
plan and impose the tax also on joint-stock companies. 

These taxes have really nothing in common with the 
corporation taxes properly so called. In Pennsylvania and 
Ohio, for instance, it is held to be not a tax at all, but a 
price paid for the chartered privilege. The distinction be- 
tween the tax on corporate charters and the corporation 
tax proper can, perhaps, best be expressed by saying that if 
the latter is a tax on the right to be, the former is a tax on 
the right to become. 

III. Ba%e% of the Tax. 

The summary just presented shows the chaos of principle 
in which the whole subject is involved. An analysis of the 
facts discloses no less than thirteen important methods of 
taxing corporations, not counting the various combinations 
of method which are practised in some states.^ The bases 
on which the taxes are assessed are as follows : — 

1 The practical importance of the tax is shown b j the figures of its yield 
in 1894, even though, owing to the financial depression, the revenues were 
considerably less, especially in New York, than in the preceding year. In 
the following table the yield of the property tax is included, for sake of 

Pennsylvania : 

Tax on personal property 







" corporation stock 
*' gross receipts 
" banks 

^* net earnings . 
** foreign insurance companies 
** gross premiums 
** corporation loans 
Bonus on charters • 





New York : 

Tax on property 

•* ** corporations 
Organization tax 











1. Value of the property^ i.e., the realty plus the visible and 
invisible personalty. This was originally the universal method 
and it is still the practice in the great majority of cases. 

2. Cost of the property. This was the general rule in New 
Jersey from 1873 to 1876 as to all raUroad companies, and is 
still the rule in isolated cases, as in New York in the local 
taxation of telegraph companies. 

3. Capital stock at par value. This is true of the general 
corporation law in New Jersey, of mining companies in 
Massachusetts, and of banks and savings institutions in 

4. Capital stock at market value. This is true of the gen- 
eral corporation law in Massachusetts and New York when 
applied to corporations where the dividends are less than six 
per cent. It was true of railroads in Connecticut between 
1849 and 1864. It is also the custom in local taxation in 
many states. 

5. Capital stock plus bonded debt at market value. This is 
true of all corporations in Pennsylvania and in Maryland 
(with certain restrictions), and of railroads in Georgia and 
in Illinois. In the case of railroads in New Jersey and of 
other corporations in Illinois, only the surplus of this valua- 
tion over the value of the tangible property is made the 
basis of the tax. In Maryland only the surplus over the 
value of the real estate is taxable as capital stock. 

Massachusetts : 

Property tax f 2,010,945 

Corporation taxes 6,218,000 

New Jersey : 

Tax on property f 2,026,110 

" " railroad corporations ... $ 1,096,850 
" " miscellaneous " ... 670,849 

Local tax on railroads .... 391,208 2,158,907 

Vermont (1893) : 

Property tax .,.,,,., , ^264,097 

Corporation tax • • • • 343,090 

Maryland (1893) : 

Corporation tax ••••••••. 840,490 




i ( 

1/ ' 



6. Capital stock plus total debt, both funded and floating. 
This is true of railroads in Connecticut, and it was true of 
steamboat companies and of similar corporations in Virginia 
during the Civil War. 

7. Bonded debt or loans. This was true of railroads and 
canals in Virginia from 1872 to 1874, and is now true of all 
corporations in Maryland and in Pennsylvania. In all these 
cases, however, it is only supplementary to the tax on capital 
stock. This tax is urgently recommended by the comptroller 
of New York. 

8. Business transacted. This is true in several states of 
savings banks taxed on their deposits ; in New York of for- 
eign banks ; in New Hampshire and Vermont of trust com- 
panies taxed on deposits ; in Connecticut and Massachusetts 
of insurance companies taxed on the amount insured ; in 
Connecticut and Georgia of telephone companies taxed on 
the number of telephone transmitters ; in Georgia and Iowa 
of sleeping-car companies taxed according to the number 
and mileage of cars; in Delaware of railroads taxed on 
the number of locomotives and passengers ; in Michigan of 
mining and smelting companies taxed on tonnage. It was 
also true in Pennsylvania from 1868 to 1874 of railroads ; 
from 1868 to 1881, of coal companies taxed on tonnage ; and 
from 1870 to 1889 of boom companies taxed on the number 
of logs rafted. 

9. Gross earnings. This is true in many states of insur- 
ance companies taxed on gross premiums, and of transporta- 
tion and other companies taxed on gross receipts. 

10. Dividends. This is true of gas and electric-light 
companies in New Jersey, of turnpike companies in Kentucky, 
and of corporations in general in Alabama. It was formerly 
true of banks and iron companies in Pennsylvania, and of 
banks and insurance companies in Ohio and Virginia. 

11. Capital stock according to dividends. This is true in 
New York of all corporations, when the dividends are at 
least six per cent. It was formerly true of banks in North 
Carolina and of all corporations in Pennsylvania. 



12. Net earnings. This is true of railroads in Delaware 
and Virginia ; of insurance companies in Alabama, Indiana, 
Maine and Nebraska ; of foreign insurance companies in 
Illinois, Missouri, and New Jersey ; of express and sleep- 
ing car companies in Virginia ; of mining companies in 
Massachusetts ; of savings banks without capital stock in 
Pennsylvania ; and of gas-works, waterworks, electric- 
light companies, ferries, toll-bridges, public mills and gins, 
and cotton compresses in Alabama. 

13. Franchise. This is true of a large number of cases ; 
but the term franchise, as we shall see, denotes nothing 
definite, and the value of the franchise is measured by each 
one of the preceding twelve tests except that of property. 

From this survey of the existing confusion, it is plain that 
we are still groping in the dark and that no one method 
has yet preeminently commended itself to the American 
sense of justice and expediency. In the next chapter we 
shall learn the judicial interpretation put upon these various 
methods, and shall attempt to analyze the situation from 
the economic point of view. That some change is impera- 
tive seems evident ; precisely what the change should be can 
be ascertained only after careful consideration. It is a com- 
plicated problem that confronts us. 

4 \ 






In the preceding chapter we traced the history and actual 
condition of the corporation tax in the United States. The 
whole subject was shown to be involved in almost inextri- 
cable confusion, amid which, however, some thirteen different 
bases for levying the tax might be distinguished. These, it 
will be remembered, were the value of the property, capital 
stock at par value, capital stock at market value, capital stock 
plus bonded debt, capital stock plus total debt, loans, busi- 
ness, gross earnings, dividends, capital stock according to 
dividends, net earnings and franchise. In the attempt to 
analyze these methods it may be well to begin with the last, 
on account of its obscurity as well as of its importance. 

I. The Franchise Tax, 

At the outset we are confronted by the question : what is 
a franchise ? The matter has been brought squarely before 
the public by the provisions of the California constitution 
of 1879, and since then by tax laws of several states which 
prescribe that franchises of corporations shall be separately 
assessed. Before we can discuss the franchise tax, however, 
we must attempt to ascertain what a franchise really is. 

Blackstone defines a franchise as "a royal privilege 
or branch of the King's prerogative subsisting in the hands 
of a subject." But his definition is too vague for our pur- 




poses. The Supreme Court of the United States has given 
this definition : — 

A franchise is a right, privilege or power of public concern which 
ought not to be exercised by private individuals at their mere will 
and pleasure, but which should be reserved for public control and ad- 
ministration, either by the government directly or by public agents 
acting under such conditions and regulations as the government 
may impose in the public interest and for the public security.* 

This definition, however, is somewhat too narrow, since it 
emphasizes unduly the element of public control and public 
interest. These are indeed very desirable adjuncts, but they 
scarcely seem to be indispensable parts of the conception. 
Nothing is more common than the possession by a purely 
private corporation of a franchise — for example, the mere 
privilege to act as a corporation. Furthermore, a privilege 
of a public character, like that possessed by a railway, is not 
necessarily confined to corporations. Thus, there is nothing 
to prevent the grant of the right of eminent domain to pri- 
vate persons. We therefore conclude that a franchise in the 
wider sense is simply a right conferred by government of 
conducting an occupation either in a particular way or ac- 
companied with particular privileges. The motive may be 
either public welfare or public revenue. This can be clearly 
seen by tracing the historical development of the franchise. 
One of the chief sources of royal income in mediaeval 
Europe consisted in the so-called "fines for licenses, conces- 
sions, and franchises." These were payments by individuals 
or associations for all kinds of special privileges, such as to se- 
cure the general favor of the crown, to retain or to quit ofl&ce, 
to obtain the right of exporting commodities, to conduct some 
business in a particular way, to obtain special jurisdictional 
privileges, to possess the right of firma hurg% and so on.* 

1 California vs. Southern Pacific R. R. Co., 127 U. S. 40. 

« A characteristic example of a fine or franchise hard to classify is this : 
The wife of Hugo de Neville paid the king two hundred hens " eo quod possit 
jacere una nocte cum domino suo " (who happened to be in prison). Motuli 
Finiumy Q ; quoted in Madox, History of the JExcheqwr^ i., p. 471. 

, » 

« t 


:. 1 




A most common instance can be found in the trading privi- 
leges of the guilds, granted chiefly for the sake of the 
accruing emoluments. Similar to these mediaeval conces- 
sions are the modern licenses, especially in the Southern 
commonwealths, which are conferred on individuals and cor- 
porations alike, and in most cases for purely fiscal reasons. 
What are called franchise taxes elsewhere are known in the 
South simply as privilege or occupation taxes. A franchise 
of an individual or of a corporation is, therefore, simply a 
privilege — something over and above the value of the prop- 
erty, and in a measure analogous to the "good will" of 
a firm. It is the indefinite something which gives vitality 
to the enterprise and makes its business worth having. 

In the case of a corporation this indefinite something is 
the privilege that individuals possess to act as one, with legal 
individuality and immortality, and with divisible share 
capital. This is a privilege which corporations share equally 
with joint-stock companies ; accordingly, the corporation tax 
is frequently made applicable also to such associations. A 
modern stock-corporation indeed possesses another privilege, 
which is exclusive to it, namely, limited liability. The cor- 
porate franchise therefore is really the privilege of juristic 
personality and limited liability ; it is the right to exist as a 
corporation. 1 Since it is something separate and apart from 
the property of the corporation, it is capable of being taxed.* 

What has been said applies, however, only to domestic 
corporations. In the case of a foreign corporation, the state 
which has not given the franchise cannot tax it. With a 
domestic corporation the franchise or right to exist is an 

1 " By the term corporate franchise we imderstand is meant the right 
or privilege given by the state to two or more persons of being a corporation, 
that is, of doing business in a corporate capacity.'* Home Insurance Co. vs. 
State of New York, 134 U. S. 594. Cf. Western Union Telegraph Co. vs. 
Mayer, 28 Ohio State 521. 

' " Nothing is better settled than that the franchise of a private corpora- 
tion ... is property and of the most valuable kind, as it cannot be taken 
for public use without compensation.** Wilmington R. R. Co. vs. Reed, 13 
WaU. 264, 268. 



empty right, if the corporation may not transact business ; 
the right to exist is therefore inextricably bound up with 
the right to carry on the business. But as regards a 
foreign corporation, the two things are distinct, and the 
state can tax only the privilege of carrying on the business 
within its borders. The corporate franchise has no existence 
apart from the laws of the state which created it. In order 
to avoid trouble, therefore, the corporation tax is usually 
imposed on " the corporate franchise or business ; " and the 
New York tax has been upheld as applicable to foreign cor- 
porations as a tax on their business, not on their franchise.^ 

The denial of the right to tax the franchises of foreign 
corporations applies equally to corporations chartered by the 
United States which are not legally foreign corporations.* 
Even national banks cannot be subjected to license or priv- 
ilege taxes.* Some recent cases in Pennsylvania have even 
held that the tax on capital stock is invalid as to stock 
invested in a patent right, because such taxation involves a 
property right which depends for its existence exclusively 
on the federal constitution and on an act of Congress.* This 
seems to be an extreme application of the general principle, 
which, if persisted in, will have important economic results. 
It will render a great part of our corporation tax laws prac- 
tically nugatory. For almost every corporation utilizes 
something covered by a patent ; and if it is held that the 
capital stock represents in whole or in part this patented 
property, the corporation would to that extent escape taxation. 

Subject to these qualifications and to the principle, to be 
discussed below, that no commonwealth may impose a f ran- 


1 People M. Equitable Trust Co. of New London, Conn., 96 N. Y. 396. 

2 California w. Southern Pacific R. R. Co., 127 U. S. 40. See Cal. Code, 
sec. 3665, amended March, 1891. 

* Mayor vs. National Bank of Macon, 59 6a. 648 ; City of Carthage vs. 
Bank of Carthage, 71 Mo. 508 ; National Bank of Chattanooga vs. Mayor, 8 
Heiskell 814. 

^ Commonwealth vs. Westinghouse Co., 151 Pa. State 265 ; Common- 
wealth vs. Air Brake Co., td. 265 ; Conmionwealth vs. Philadelphia Co., 157 
Pa. 527 ; Commonwealth vs. Lehigh C. and I. Co., 162 Pa. 603. 


I * 





chise tax to interfere with interstate commerce, the taxation 
of corporate franchise has no limitation, except the discre- 
tion of the taxing power. ^ 

Greater difficulties arise when an attempt is made to 
measure the franchise of a corporation. We have seen 
that there are not less than thirteen separate methods of 
taxing corporations and that each of these methods, with one 
exception, is declared to involve a franchise tax. There are 
yet other methods of measuring franchise, such as the value 
of the capital stock less the value of the property, the value 
of the stock less the value of the tangible property, the 
value of the stock less the value of the realty, the value 
of the stock and bonds less each or all of these items, etc. 
There is a total lack of uniformity. Each commonwealth 
measures the franchises of its corporations in its own way ; 
and frequently a given commonwealth measures the fran- 
chises of different corporations in entirely different ways. 
There is an utter absence of any common standard of 
measurement. Capital stock, stock minus property, stock 
minus realty, bonded debt, business, gross earnings, dividends, 
profits, etc,^ are each declared to be the value of the franchise. 
The result is hopeless confusion. It would be useless to 
examine the methods of all the states ; a single example — 
that of New Jersey — will suffice. 

The state board of assessors of New Jersey have published 
since 1884 several bulky volumes in which they discuss the 
details of corporate assessment. In the case of railroads 
they have adopted the following plan.^ The market value 
of the stock is added to the market value of the debt ; from 
this aggregate the total value of the tangible corporate 
property is deducted, and the remainder is declared to be 
the "adventitious value of the entire road, its privileges 
included." Sixty per cent of this is taken as the value of 

1 Delaware Railroad Tax Case, 18 Wall. 231 \ California vt. Southern 
Pacific R. R. Co., 127 U. S. 41. 

* Report of the State Board of Assessor » of New Jersey ^ 1884, p. 26 ; 1885, 
p. 11 ; 1886, p. 28 ; 1888, p. 6. 



the franchise, to which is added the value of the real and 
tangible property, known as the "abstract value" of the 
road, making a total which is termed the entire value of 
the railway for purposes of taxation. This, however, is not 
all ; for if the value of the tangible property exceeds the 
value of the stock and debt, the board declares the franchise 
to be twenty per cent of the gross earnings. It will be 
readily perceived that this measurement of a franchise, which 
may give a result less than nothing, is rather awkward. 
Indeed, the courts of New Jersey have overturned this 
portion of the assessors' standard by pronouncing the estimate 
based on gross earnings unconstitutional ; ^ but the main 
element in the method of valuation was upheld on the easy- 
going principle that no substantial injustice was done. It is 
this absence of " substantial injustice " to which is due the 
chaotic condition of franchise taxation in this country to-day. 
In Illinois and in California, the method of taxing fran- 
chises is similar to that of New Jersey. In Illinois, the board 
of equalization adds the cash value of the stock to that of the 
debt (excluding current debt), and declares the result to be 
the fair cash value of the capital stock including the fran- 
chise. From this the board deducts the equalized value of 
all the tangible property, and declares the remainder to be 
the value of the capital stock and franchise subject to taxa- 
tion. This method was upheld by the Supreme Court of the 
United States as being "probably as fair as any other." ^ in 
California, the value of the franchise is determined by sub- 
tracting from the actual value of the capital stock the value 
of all the items of property.^ In Kentucky, the assessors 
deduct from the amount of the capital stock the assessed 
value of all tangible property taxed in the state, and declare 

* Case of Railroad Tax Law, N. J. Court of Errors and Appeals, decided 
May 29, 1886. The case may be found in full in the Third Annual Beport 
of the State Board of Assessors^ 1886, pp. 79-173. 

2 State Railroad Tax Cases, 2 Otto 575. Cf Railway vs. Backus, 164 
U. S. 421. 

» Approved in Spring Valley Water Works vs. Schottler, 62 Cal. 69, 118 ; 
Burke vs. Badlam, 57 Cal. 594 ; San Jos6 County vs. J^anuary, 57 Cal. 614. 





'• ) 



the remainder to be the value of the franchise. In the case 
of foreign companies, however, they take that proportion of 
the capital that the gross receipts in the state bear to the 
total gross receipts, and then deduct the value of the tan- 
gible property assessed in the state. In the case of transpor- 
tation companies they take only that proportion of the capital 
stock which the length of the line within the state bears to the 
total length. 1 In Indiana, if the full value of the franchise is 
represented by the capital stock, the franchise is taxed ; but 
when the franchise is of greater value than the capital stock, 
then it is provided that the franchise " shall be assessed at its 
full cash value," and the capital stock shall not be taxed. ^ In 
the other states the determination of the franchise is generally 
fixed by statute, but the variety of methods is very great. 

The meaning of " franchise tax ' ' is thus something wholly 
indefinite. What is called a franchise tax in one state may 
be absolutely unlike that in the adjoining state. The only 
course open for us, therefore, is to discuss the principles 
underlying corporate taxation, regardless of the technical 
phraseology. Before proceeding to this discussion, however, 
there still remain a few points for examination. 

What is the real significance of the franchise tax ? Why 
is it desirable that such a hard and fast line should be drawn 
between the property tax and the franchise tax? What is 
the meaning of the distinction? 

The answer is very plain. In the first place, according to 
the constitutions of several of the states, the taxes on prop- 
erty must be uniform. If, however, the corporation tax is 
held to be a franchise tax, there is no necessity of such 
uniformity between the tax on individuals and that on cor- 
porations. Secondly, according to the principles of the 
property tax, deductions are allowed for certain classes of 
exempt or extra-territorial property. If the tax is a fran- 
chise tax, such exemptions cannot be claimed. Thirdly, if 
the tax is a franchise tax, and not a tax on property or 

1 Ky. Laws of 1892, chap. 102, art. iii., § 3. 
> Ind. Law of Mar. 6, 1891, § 74. 




earnings, it may be upheld as not interfering with interstate 
commerce. Finally, if the tax is a franchise tax, many of 
the objections to double taxation would be removed, as we 
shall see later on. Every commonwealth imposing a franchise 
tax, for instance, could assess the entire capital of a corpora- 
tion, although only a very small portion might be located or 
employed within the state. We can hence readily under- 
stand the persistence with which the corporations seek to 
uphold the distinction and to have the charge declared to 
be not a franchise, but a property, tax. 

The question has arisen almost exclusively in connection 
with the taxation of deposits, capital stock or earnings. In 
the case of deposits of savings banks the decisions are almost 
uniform that the tax is one on the franchise and not on the 
property ; ^ among the few commonwealths that tax such 
deposits, Connecticut, Maine, Maryland and Massachusetts 
accept this view. Moreover, since there is no necessary 
relation between the amount of the deposits and the extent 
of the property, the tax is valid even if the deposits are in- 
vested in United States securities. Only one commonwealth. 
New Hampshire, has held out against the general tendency 
and pronounced the tax on deposits to be a property tax.^ 

In the case of capital stock the matter is more compli- 
cated and the decisions are more divergent. That capital 
stock is in one sense property will of course be denied by 
no one ; but whether the tax on capital stock is tantamount 
to a tax on general property is an entirely different ques- 
tion. In several commonwealths it has been held that cap- 
ital stock practically represents the property, and that the 
two are to all intents and purposes interchangeable terms.* 

1 Maryland w. Central Savings Bank, 72 Md. 92 ; Coite w. Society for 
Savings, 32 Conn. 173, affirmed in 6 Wall. 594 ; Provident Institution t?». 
Massachusetts, 8 Wall. 611. See also Commonwealth vs. Savings Bank, 123 
Mass. 493 ; Jones vs. Savings Bank, 66 Me. 242. 

2 Bartlett vs. Carter, 59 N. H. 105. 

' 8 Jones vs. Davis, 3 Ohio 474 ; Burke vs. Badlam, 57 Cal. 594 ; New Or- 
leans vs. Canal Co., 29 La. A. R. 851 ; Whitney vs. Madison, 23 Ind. 331 ; 
County Commissioners vs. National Bank, 48 Md. 117. 




;/ ■ 


» • 



As regards the tax on capital stock in general, other com- 
monwealths, however, have decided, and the federal courts 
have affirmed the decision, that it is not a tax on the prop- 
erty. Thus, it has been held that the Delaware railroad tax 
of one-quarter of one per cent on the actual cash value of 
the capital stock is a tax not on the property or on the 
shares of individuals, but on the corporation, measured by 
a certain percentage on the value of its shares.^ In like 
manner the Massachusetts taxes on the whole value of 
the corporate shares and on the capital stock in excess 
of the value of the real estate and machinery have been 
pronounced taxes on the franchise.^ In a recent case it has 
been held that this tax, although nominally upon the shares 
of capital stock, is in effect a tax upon the organization on 
account of property owned or used by it, and therefore valid. 
It is an excise tax, not a property tax, and therefore not limited 
by the constitutional restrictions as to the uniform taxation 
of all property.^ On the other hand the Connecticut courts 
have held that the tax on capital stock and debt is not a 
tax on franchise, but on property ; * and the older cases 
in Alabama and Missouri were similarly decided.** 

Secondly, in the case of capital stock as measured by 
dividends, the courts of Pennsylvania and New York have 
arrived at diametrically opposite conclusions. In Pennsyl- 
vania a long series of cases has consistently maintained the 
doctrine that the tax is one on property.* The court has 
endeavored to lay down this rule : — 

1 The Delaware Railroad Tax Case, 18 Wall. 206. 

^ Hamilton Co. vs. Massachusetts, 6 Wall. 632 ; Commonwealth vs. Ham- 
ilton Manufacturing Co., 94 Mass. 298 ; Manufacturers' Insurance Co. vs. 
Loud, 99 Mass. 146 ; Portland Bank vs. Apthorp, 12 Mass. 262 (1815), the 
basis of all subsequent decisions. 

« Western Union Telegraph Co. vs. Massachusetts, 126 U. S. 630. 

« Nichols vs. Railroad Co., 42 Conn. 103. 

^ State vs. Insurance Co., 89 Ala. 336 ; State vs. Railway Co., 37 Mo. 

6 Fox's Appeal, 112 Pa. 369; Commonwealth vs. Standard Oil Co., 101 
Pa. 119 ; Phoenix Iron Co. vs. Commonwealth, 69 Pa. 104 j Catawissa Appeal, 
78 Pa. 59. 



The test whether the tax in any given case is a franchise as 
distinguished from a property tax, would seem to be that a tax 
according to a valuation is a tax on property, whereas a tax im- 
posed according to nominal value or measured by some standard 
of mere calculation — as contrasted with valuation — fixed by the 
law itself may be a franchise tax.^ " 

The New York and New Jersey courts, on the other 
hand, have held the tax on capital stock to be a franchise 
tax.2 The New York case was carried in last instance to 
the federal court. Of course the fact that the statutes of 
Massachusetts and New York expressly declared the tax to 
be a franchise tax, was of no weight ; for it was justly 
contended that no importance should attach to mere nomen- 
clature. But the United States Supreme Court had already 
shown the tendency of its thought in the Massachusetts and 
Delaware decisions just cited. In a subsequent case, the court 
said, although indeed obiter, that the New York tax was 
"a franchise tax in the nature of an income tax.''^ Finally, 
in a later case, the tax was definitely pronounced to be on 
franchise, the court holding that the tax was not upon the 
capital stock nor upon any bonds of the United States com- 
posing a part of that stock ; but that reference was made to 
the capital stock and dividends only for the purpose of deter- 
mining the amount of the tax to be exacted each year.* 

This decision may be defended on economic as well as 
on legal grounds. It may be granted, and in fact it is diffi- 
cult to dispute the contention, that the tax is in one sense 
a tax on capital stock. Nevertheless, it does not follow 
that the tax is a property tax ; for from the economic 
point of view capital stock is not necessarily identical 
with the property of a corporation. In the first place 
there is the question of the market or par value 

1 101 Pa. 127. 

« People vs. Home Insurance Co., 92 N. Y. 328 ; Singer Co. w. Heppen- 

heimer, 26 Vroom 439. 

» Or, as it was said in another place, " a tax upon its franchise based upon 
its income." Mercantile Bank vs. New York, 121 U. S. 168, 160. 

* Home Insurance Co. vs. State of New York, 134 U. S. 694. 


» r 




of the stock. Some of the commonwealths, as we know, 
tax corporations on the amount, i.e. the par value, of the 
capital stock. Yet manifestly, where the market value of 
the stock may be double or half the par value, it cannot 
be maintained that the latter is identical with, or an index 
to, the value of the property. In no sense, therefore, can 
capital stock at its par value be declared equivalent to the 
whole property. Even if we take the market value of 
the stock, we are not in a much better position, for many of 
our corporations, especially railroads, are created from the 
proceeds of the bonds. In such cases, although the prop- 
erty may be great, the profits are devoted mainly to meet- 
ing the interest on the bonded debt, and since there may be 
no dividends, the value of the stock may be very slight. Yet 
the property which produces these profits may be enormous. 
Evidently the capital stock and the whole property are not 
identical. But we may go still farther. Even in the case of 
corporations without a bonded debt, but whose property does 
not pay good dividends, the capital stock at its market value 
is no index of the value of the property. Thus, a model- 
dwellings company may have property worth a million 
dollars; yet if it is so managed as to pay no dividends, 
the stock will sell in the market for a very small sum. 
The value of this depreciated stock is evidently not the 
same as that of the company's real property. They are 
not interchangeable terms. Hence, from whatever point of 
view we regard it, capital stock is not identical, economically 
speaking, with the total corporate property ; a tax on capital 
stock is not a tax on the entire property. 

The courts of New Jersey, New York and the United States 
are then perfectly right in their decisions ; and the Pennsylva- 
nia cases seem to be incorrect both in law and in economics. 
The third case in which the question of a franchise tax 
is of importance is in connection with the subject of 
interstate commerce. The growth of the interpretation put 
upon the principle that no state may levy a tax interfering 
with interstate commerce will be more fully discussed here- 



after.i It may be stated here, however, that in a large number 
of cases it has been held that a tax on the franchise of a 
domestic corporation is perfectly valid even though the 
value of the franchise is measured by the gross receipts, 
a part of which are derived from interstate commerce.* 
Were the tax not a franchise tax, it would be invalid as 
a tax on interstate business. 

It will be seen from the above review that the entire 
treatment of a franchise tax is based largely on a legal 
fiction. The conception is legal, not economic. It was 
devised by the legislatures and extended by the courts 
in order to evade the evil results of the general prop- 
erty tax.^ It is remarkable that in the state of New 
York, where the commonwealth tax on capital stock is held 
to be a franchise tax, the local tax on capital stock, which 
is levied in almost the identical way, is held to be a property 
tax. In the local tax a deduction must be allowed for any 
non-taxable property in which the capital may be invested ; 
in the state tax no such deduction is permitted.* Such a 
distinction is economically incorrect. Except in so far as 
corporations may be made to pay for their charters, there is 
no reason why they should be put on a different footing 
from joint-stock companies or other associations. The 
ability of an association to pay — its earning power — is not 
changed a whit by the simple fact of incorporation. The 

1 Infray pp. 206-212. 

2 State Tax on Railway Gross Receipts, 15 Wall. 284 ; Maine r». Grand 
Trunk R. R. Co., 142 U. S. 217 ; People w. Wemple, 117 N. Y. 136, and 
other cases cited below. 

» This is apparent from the New York law of 1866, chap. 761, which 
declared the privileges and franchises of savings banks to be personal prop- 
erty, and taxable to an amount not exceeding the gross sum of the surplus 
earned. In Monroe County Savhigs Bank m. City of Rochester, 37 N. Y. 
365, the law was upheld, although the bank had a portion of its property 
invested in United States bonds. The court held that since the tax was 
upon franchise it was unimportant in what manner the property of the cor- 
"poration was invested. " The reference to property is made only to ascer- 
tain the value of the thing assessed." 

♦ People M. Barker, 139 N. Y. 65 ; People w. Commissioners, 72 Hun 
126 ; People w. Coleman, 126 N. Y. 433. 





t J 


privilege of limited liability, however important it may be 
to the individual stockholders, and however great the amount 
that may be demanded for the privilege as a condition pre- 
cedent to organization, does not alter the taxable capacity 
of the association after it has once become a corporation. 
If the corporate franchise, in the sense of the privilege of 
being a corporation, itself constituted the only justification 
of a tax, how would it then be possible to tax unincorporated 
companies in the same way? And yet to exempt the latter 
would clearly constitute a glaring economic inequality. 

The value of the franchise from the economic point of 
view consists in the earning capacity of the corporation. 
That is the real basis of all taxation and can best be gauged 
by the amount of business done. It will be remembered that 
the court says : " Whether the tax upon a domestic corpora- 
tion be called a tax upon franchise or upon business is 
wholly unimportant." 1 We may go farther and say that 
from the economic standpoint it is wholly immaterial whether 
the tax upon any corporation be called a tax on franchise or a 
tax on business. In an economic sense the franchise tax means 
nothing at all. It is so utterly indefinite that it defies exact 
analysis. However valuable it may be to the lawyer in the 
effort to evade certain constitutional restrictions, to the 
student of the science of finance it is a useless conception. 

II. Economic Theory. 

Let us therefore leave the domain of these legal quibbles 
and attempt to analyze the economic principles underlying 
the taxes actually in vogue, irrespective of the question 
whether they are called franchise taxes. It will be best to 
take them up in the order mentioned above.^ 

First, the general property tax, or the taxation of the 
corporate realty plus its visible and invisible personalty at 
its actual value. It will not be necessary to show the in- 
adequacy of this primitive plan ; all the actual reforms are 
moving away from it. We have seen in a previous chapter 

1 96 N. T. 396. i Supra, pp. 177-179. 



that the standard of taxation is ability to pay, and that 
this ability is no longer proportional to the general mass of 
property. The general property tax is to-day antiquated. 
When as a state tax it is levied by the local assessors, it 
becomes especially unjust ; and even when assessed by a sepa- 
rate state board it is inexact, and exhibits all the defects of 
the general property tax on individuals. We may conclude, 
therefore, with the railroad tax commission of 1879, that as 
a system it is open to almost every conceivable objection.^ 

The cost of the property, as a basis for taxation, is even 
less defensible than the value of the property. For no one 
would assert that the original cost of corporate property 
bears any necessary relation to the present value, much less 
to its present earning capacity. This method is so obviously 
unjust as to deserve no further mention. 

The capital stock at its market value. This plan is open to 
several vital objections. The idea is that the market value 
of the stock will be practically equivalent to the value of the 
property, or, as it is put by some of our state courts, that 
the entire property of a corporation is identical with its 
stock. As has already been observed, heavily bonded corpo- 
rations would in this way entirely escape taxation ; because 
in such cases — and they are the great majority — the capital 
stock alone would not represent the value of the property. 
Secondly, even in the case of corporations without any 
bonded debt, the tax is unjust, because it does not neces- 
sarily bear any relation to the earning capacity. If a com- 
pany without bonded debt pays dividends, the value of the 
stock is indeed a fair index to earning capacity ; its value 
would represent the capitalized earnings. But if there 
are no dividends, the value of the capital stock is wholly 
uncertain and largely speculative, depending on the manip- 
ulations of the stock exchange. It frequently happens that 
non-dividend-paying stock fluctuates in value from thirty to 
fi^fty per cent within one year. A standard of taxation which 

1 Taxation of Bailroads and Bailroad Securities, by C. F. Adams, W. B. 
WiUiams and J. H. Oberly (1880), p. 8. 




in such large classes of cases bears no proportion to the earn- 
ing capacity or productiveness of the property clearly cannot 
be successfully defended. We can again agree with the rail- 
road tax commission in their conclusion that the tax on the 
value of the capital stock is " clumsy and devoid of scientific 
merit," that it " would admit of evasions in a most obvious 
way," and that " it is impossible of any general application." ^ 

The New York statute which governs the taxation of cor- 
porations for local purposes requires the capital stock to be 
assessed "at its actual value in cash." In determining the 
"actual" value, the assessors may take "book value," Le. a 
value obtained by estimating the assets separately and 
deducting from the aggregate the total amount of the liabili- 
ties, actual or contingent.^ The latter method is employed 
when the market value of the stock is fictitious or artificially 
inflated, but in principle is open to precisely the same criti- 
cism as the other method. In fact, the objections are rather 
stronger ; for, whereas in the case of the tax on capital stock 
according to market value the bonded indebtedness is not 
taxed at all, in this case the bonded indebtedness is actu- 
ally deducted. Under the New York law it has been recently 
decided that " capital stock " does not necessarily mean share 
stock, but the capital owned, the fund required to be paid 
in and kept intact as the basis of the business enterprise. 
When the capital is undisclosed, the assessor may consider 
the market value of the shares as an aid in discovering the 
capital, but not as the thing to be valued and assessed. * 

The capital stock at its par value. This method is open to 
all the objections of the preceding and to many more in 
addition. Moreover, it is peculiarly liable to evasion. For 
example, in New York it is a common practice for corpora- 
tions to evade the organization tax by issuing a nominally 

^ Report, etc., p. 7. Cf. the Report on the Valuation and Taxation of 
Railroads, to the Pennsylvania Tax Conference, 1894, written by Mr. 
Joseph D. Weeks. * 107 N. Y. 641. 

8 People vs. Coleman, 126 N. Y. 433, distinguishing many preceding cases. 
See also People vs. Commissioners, 72 Hun 126 (1894). 



small capital, but selling it to the stockholders at a premium 
of several hundred per cent ; the market value of the stock 
is thus at once many times the par value. The sole recom- 
mendation of this plan is the facility of fixing a basis for 
assessment ; but this does not compensate for its obvious 
defects. The par value of stock is certainly no gauge either 
of the real worth of the property or of its earning capacity. 
This is perhaps the least defensible of all the methods. 

The capital stock plus the bonded debt at the market value. 
The justification for adding to the value of the stock the 
value of what the company owes, in the shape of its funded 
debt, is the simple fact that the existence of this in- 
debtedness makes the stock worth just so much less. The 
sum of the two elements is a far better index to the value of 
the property than the capital stock alone. This method is 
much preferable to any that has yet been discussed, because 
it prevents the exemption of heavily bonded companies; 
and yet it is not entirely free from objections. Owing to 
the complications of interstate polity, the proceeds of the 
tax, in all cases where the stock and bonds of a corporation 
are owned outside of the commonwealth, will accrue not to 
the state of the owner's residence, but to the state where 
the corporate property is situated. Secondly, when the tax 
is on bonds as well as on stock it will be inadequate, because 
applicable only to the bonds owned by residents of the state. 
If the tax is, however, levied not on the bonds, but on a valua- 
tion equal to the stock plus bonds, this objection may be obvi- 
ated. Both these points wUl be discussed more fully below. 
Thirdly and principally, in all those cases where the corpo- 
ration pays no dividends and its stock nevertheless possesses 
a speculative value, the tax, for the reasons adduced above, 
will not necessarily bear any relation to the earning capacity 
of the company. In short, while this method is far better 
than the taxation of capital stock, it does not avoid all the 
ot)jections that have been urged against the latter. 

There remain thus only the taxes on earnings, on busi- 
ness, on dividends and on profits. 






The gro%% earnings. This tax was the one recommended 
by the railroad tax commission. It possesses many unde- 
niable advantages. It is certain, easily ascertained and not 
susceptible of evasion. But it has one fatal defect ; — it is 
not proportional to the real earning capacity, it takes no ac- 
count of the original cost, nor does it pay any regard to the 
current expenses, which may be necessary and just. For ex- 
ample, when the cost of building a railroad is great, its gross 
earnings must be correspondingly large in order to enable its 
owners to realize any fair return on the investment. A tax 
on gross earnings does not recognize this distinction. It 
discriminates unfairly between companies, and makes a line 
built at great expense and with great risk pay a penalty for 
the enterprise of its constructors. Again, a gross earnings 
tax takes no account of expenses. Of two corporations 
which have equally large gross receipts, one may be in a 
naturally disadvantageous position which unduly increases 
the cost of operation or management. Clearly its ability to 
pay is not so great as that of its rival in possession of natural 
advantages. In short, the gross receipts tax is like the old 
tithe, the most primitive of all land taxes. 

These defects in the proportional earnings tax are so ap- 
parent that several commonwealths, as we know, have intro- 
duced, in the case of railroads at least, the graded gross 
earnings tax, the rate per cent increasing with the earnings. 
But this system removes the objection only in part, for the 
graduation takes place only up to a certain point. Above 
all, there is no guarantee that the increase of net receipts 
will correspond to the increase of the gross receipts. There 
is no necessary connection between them. A corporation 
with gross receipts of five thousand dollars per mile may 
have actually less net receipts than one with four thousand 
dollars per mile. In such a case a graded earnings tax 
would intensify the disadvantages of the first Ime and 
augment the injustice. To tax gross earnings is, therefore, 
essentially a slip-shod method. 

The business transacted. This tax, while closely anal- 




ogous to the gross earnings tax, does not possess all its 
advantages. The business may be large but not lucrative. 
An extensive business does not mean even proportionally 
extensive gross earnings. The business transacted is an 
exceedingly rough way of ascertaining the prosperity of a 
corporation. It affords no accurate test of proftts, and fails 
to take account of the personal equation which may make all 
the difference between good and bad manageme?at. Clearly, 
the tax on business is but a clumsy device. 

The dividends or the capital stock according to dividends. 
Economically speaking these taxes are the samt ; but from 
the legal point of view, at least according to the opinion of 
the Supreme Court, there is a decided difference. The dis- 
tinction is brought out in connection with the subject of 
extraterritoriality, and will be fully discussed below. We 
are here dealing only with the economic problem. 

The dividends tax, it may be said, is good so far as it goes; 
but it does not go far enough. It is indeed true that some 
of the objections are slight. Thus it has been contended that 
this tax fails to reach the profits which are not divided but 
which are simply put into a reserve fund ; and some com- 
monwealths have even sought to obviate the supposed diffi- 
culty by providing that the tax should apply to the dividends, 
whether declared or merely earned and not divided. This 
objection, however, is not of great importance ; for even if 
the undivided earnings are not taxed, they go into the reserve 
or surplus fund ; and as this increases the corporate capital, 
it must in the long run lead to increased earnings on the 
larger capital. Since the surplus cannot be increased indef- 
initely, it will ultimately find its way to the shareholders as 
dividends, and thus become liable to the tax. 

Another objection which might be urged is that a cor- 
poration may devote a portion of its earnings to new con- 
struction or to new equipment. This expense may be 
defrayed out of profits, instead of from the capital or con- 
struction fund. The dividends in such a case, it might be 
said, do not represent the actual earning capacity of the enter- 







prise. While this is true temporarily, the improvements made 
by the corporation necessarily enhance the value of the prop- 
erty and ultimately lead to increased dividends, so that in the 
long run a tax on dividends would still reach the corporation. 

The real objection to the dividends tax is of quite a dif- 
ferent character. It is utterly inadequate when applied to 
those corporations which have bonded indebtedness. Thus 
one corporation having no bonds may earn enough to pay 
dividends of five per cent on its stock, while another, with 
the same earnings, may have devoted half to the payment of 
interest on bonds, and only half to the payment of dividends. 
A tax on dividends, while nominally just, would be actually 
most unjust, for one corporation would pay just twice as 
much as the other. The objection has been recognized in 
American legislation, but only once. The United States 
internal revenue law of 1864 provided for a five per cent 
tax (raised from three per cent in 1862), which, in the case 
of railroads, canals, turnpike, navigation and slackwater 
companies, was imposed on all dividends, as well as on 
all coupons or on all interest, on evidences of indebted- 
ness and on all profits carried to the account of any fund. 
In the case of those companies which were not pre- 
sumed to have any bonded debt, like banks, trust com- 
panies, savings institutions and insurance companies, the 
tax was imposed only on dividends and surplus. The 
federal law, indeed, violated strict consistency in impos- 
ing a gross earnings tax also on transportation and on certain 
insurance companies ; but the correct implication in the 
law was the inadequacy of a tax on dividends alone. In 
fact, the objections to the dividends tax are closely analogous 
to those which we found in the capital stock tax as compared 
with the tax on stock plus debt. Its great defect is that it 
reaches only a part of the corporate earning capacity. 

We thus come finally to the tax on net earnings^ or rather 
on net receipts, profits or income. This is the most logical 
form of corporate taxation. The tax is not, like the gross 
earnings tax, unequal in its operation. It holds out no 



inducement, like the general property tax, to check improve- 
ments. It is just; it is simple; it is perfectly proportional to 
productive capacity. In short, it satisfies the requirements 
of a scientific system. 

There are two possible objections to a tax on net receipts. 
One is that the accounts may be "cooked" by paying 
unduly large salaries to the officers ; that is, the profits 
may be divided as nominal expenses, thereby leaving very 
insignificant net receipts or none at all. This objection, 
however, would not apply at all to the vast majority of 
corporations, whose stock or bonds are held by outside 
parties, who will not consent to see their dividends or 
interest curtailed by any practices of this nature. The 
danger can be real only in respect to the few corporations 
in which the stock is owned entirely by the managers. 
But these are chiefly manufacturing corporations, which, as 
we know, are usually exempted from the general corporation 
tax. Even here, however, the danger is not very great. 
We hear of no complaints on this score in the American 
commonwealths where the net receipts tax prevails; and 
in Europe, where this method of taxation is well-nigh uni- 
versal, the objection has never been raised. It may thus be 
pronounced of little importance. 

Secondly, it may be contended that the tax is imprac- 
ticable in the case of great railroad corporations which, 
having leased lines in other states, are interested in so 
manipulating the traffic that the heavily mortgaged leased 
lines will earn little or nothing above fixed charges. Such 
cases are very common. The commonwealths in which 
such leased lines are situated will, it is argued, be robbed 
of the whole benefit of the tax; since the proceeds accrue 
to the state of the parent company. In reality, this 
objection arises simply from a quibble about words. Of 
course net receipts must be strictly defined. The logical 
basis of corporate taxation is the total annual revenue from 
all sources minus all actual expenditures except interest 
and taxes. The reason for not deducting fixed charges, i.e. 

* '[ 





M . 


interest on the bonds, is the same as that which leads some 
of the states to levy the railroad tax on capital plus debt, 
and which made the federal government tax coupons as well 
as dividends. Both together represent earning capacity. 
Although the interest on the funded debt is known by the 
name of fixed charges, it is really part of the profits which, 
in the absence of funded debt, would go to the shareholders 
as dividends. It would obviously be suicidal so to frame 
the definition of net receipts as to exclude this interest on 
bonds. Net receipts of a corporation mean gross receipts 
minus actual current expenses. Any other definition would 
confuse the whole conception. 

In several commonwealths some very dubious and 
arbitrary distinctions have been attempted. The Minne- 
sota courts have held that "earnings" means only re- 
ceipts from operation.! Under the New York law it haa 
been held that "income" means gross income, and that 
" profits " means gross profits, not clear profits ; ^ but this 
decision was owing to some peculiarities of the statutory 
phraseology. From the standpoint of the science of finance 
we understand by "income," net income, and by "profits," 
only net profits. So in Pennsylvania and Alabama it has 
been held that income, gains or net earnings means the whole 
product of the business, deducting nothing but expenses.^ 
The Thurman law, indeed, which regulates the relations 
of the federal government to the Pacific railroads, defines 
net earnings in a different way, vi2., as the gross earnings, 
deducting "the necessary expenses actually paid within 
the year in operating the lines and keeping the same in a 
state of repair," and also deducting "the sums paid by 
them in discharge of interest on their first mortgage 
bonds," but " excluding all sums paid for interest on any 

1 State vs. Railroad Co., 30 Minn. 311. 

2 People vs. Supervisors of Niagara, 4 Hill. 20 ; People vs. Supervisors of 
New York, 18 Wend. 605. 

« Commonwealth vs. Pa. Gas Coal Co., 62 Pa. 241 (1869) ; Board of Rev- 
enne vs. Gas Light Co., 64 Ala. 269. In the case of mines, " net proceeds " 
have been defined ; Montana Code, § 1791. 



other portion of their indebtedness." ^ The explanation of 
this arbitrary definition lies not in any economic principle but 
in a particular legislative provision whereby the first mortgage 
bonds are given precedence over the government liens. The 
Supreme Court has held that " net earnings " as here used 
exclude expenditures for new construction and new equip- 
ment.^ The Interstate Commerce Commission makes a dis- 
tinction between earnings and income, including in earnings 
only receipts from transportation, and designating as income 
the receipts from property owned but not operated. The 
aggregate it calls total earnings and income.^ While this 
separation of earnings is correct, the nomenclature is on the 
whole confusing, since the term income should be reserved 
for the conception net profits. In Virginia the net income of 
corporations is ascertained by "deducting from gross re- 
ceipts the costs of operation, repairs, and interest on indebt- 
edness." So also by the federal law of 1894 the income tax 
was levied only on corporate dividends ; but this, as we 
have seen, is economically incorrect. Interest on bonds 
should not be exempted. 

If it be desired to obtain in the case of railroad com- 
panies a more exact definition of net receipts or income, the 
following would be a sound method of procedure: Gross 
receipts consist of all earnings from transportation of 
freight and passengers, receipts from bonds and stocks owned, 
rents of property and all miscellaneous receipts from ancillary 
business enterprises or otherwise. From these aggregate 
gross receipts we should deduct what are classified by the 
Interstate Commerce Commission as operating expenses, 
that is, expenses for conducting transportation, for main- 
tenance of roadway, structures and equipment, and for gen- 
eral expenses of management. No deduction should be made 
for fixed charges, Le, for taxes or for interest on the debt, 

1 Act of May 7, 1878, 45th Cong., 2d Sess., chap. 96, sec. 1. 
2 Union Pacific R. R. Co. vs. United States, 99 U. S. 419. 
« Report on the Statistics of Railways in the U. S. to the Interstate Com- 
merce Commission^ 1889. 





\ ■ 


I : 


or for the amount used in new construction, in betterments, 
in investments, in new equipment, or for any of the expendi- 
tures that find their way into profit and loss account. 

The method here suggested would lead to the abolition 
of one of the serious abuses of American railway manage- 
ment — that of putting all possible expenses into the con- 
struction account. The railways, for example, frequently 
fail to charge the maintenance and repair of their rolling 
stock to current expenses. When the equipment has become 
unserviceable, new stock is bought and charged to the con- 
struction or to the profit and loss account. In the mean- 
time the nominal earnings of the railway seem large, and the 
managers reap whatever temporary benefit they may desire. 
The taxation of net profit in the sense that has been indicated 
would tend to check this practice, since deductions would be 
allowed for maintenance, but not for new equipment. A 
tax on net receipts, thus, would possess not only a financial, 
but also a wider economic advantage. 

European experience all points to taxation of net earnings 
as the best system. One country, indeed, still assesses cor- 
porate property in some form or other. Switzerland, as we 
have seen, is the only European state which has retained 
the mediaeval system, once common to all countries. The 
reasons, as was pointed out, are the comparative equality 
of conditions and the survival of the primitive villages 
and agricultural communities with their placid and homo- 
geneous economic life. It is significant, however, that many 
of the Swiss commonwealths, in which we notice a gradual 
industrial development and a consequent differentiation of 
property, have attempted to remedy some of the obvious 
defects of the general property tax by supplementing it 
with an income tax. Thus some cantons, like Schaff- 
hausen, Ziirich, Basel, Aargau and others, tax corporations 
on their capital or their reserve fund ; or, if the net receipts 
exceed a certain percentage of the capital, on their income. 
This system resembles, although in a very slight degree, 
those of New York and Pennsylvania. Other cantons, like 

Bern, have abandoned the general property tax, and assess 
corporations only on their real estate and their income. 
Finally, some cantons, like St. Gall and Neuchlitel, tax cor- 
porations directly only on their income. Even in Switzer- 
land, with its fondness for mediaeval customs, we see, there- 
fore, that the tendency is almost everywhere away from the 
taxation of corporate property. In the other European 
states this tendency has passed into accomplished fact. 

In England, all corporations are held to be "persons" 
within schedule D of the income tax, and consequently they 
pay a tax on their net annual profits or gains. A series of 
important cases has elaborated the principles that should 
determine the exact nature of net profits.^ The rules laid 
down are analogous to those described in the definition of 
net receipts just given. The tax, moreover, is paid before 
the dividends are declared. Railroads are also subject to 
the special passenger duty of five per cent on receipts from 
passengers, which is merely a survival of the old tax on 
stage coaches, and to a corporation duty, which is intended 
to take the place of the " death duties " on individuals. 

In France, all corporations pay a tax on net profits in the 
shape of a three per cent tax on dividends, coupons and 
profits, known as the tax "«wr le revenu dea valeurs mobi- 
Hires," The tax is also applicable to joint-stock companies 
and to commercial enterprises,^ while mutual insurance com- 
panies and similar associations have by judicial interpreta- 
tion been exempted. Like individuals, corporations are also 
subject to real estate taxes and to the license taxes (impSts des 
patentes) on occupations. In the case of railroads, however, 
we still find a partial tax on gross receipts. The five per 
cent tax on gross receipts from freight, which was imposed 

1 Ellis, A Guide to the Income Tax Acts, 2d edition, pp. 80, 92-101. 

2 The tax is imposed on " les intfirets, dividendes, revenus et tons autres 
pr6duits des actions de toute nature '* of stock companies, and on " les in- 
tSrets, produits et b6n6fices annuelles des parts d'int6r§t et commandites " 
of all associations, etc., without a divisible share capital. Law of June 29, 
1872, art. 1. Cf. Tanquerey, Traite theorique et pratique de Vlmpot sur le 
Bevenu des Valeurs Mohilieres, pp. 23, 61, 143, etc. 





I » ; 

/ » 



after the Franco-Prussian war, proved to be so vexatious 
and so obstructive to industrial development that it was 
abolished a few years later. ^ But the old "tax on pub- 
lic conveyances " — a percentage on the fare — , which dates 
from the last century, was extended in 1855 to the receipts 
from passengers and from express traffic. In practice, 
this "public conveyance" or transportation tax^ is not 
a direct tax on the corporations, but an indirect tax on 
passengers and on consignors of express packages ; for the 
tax is added to the price of the ticket or receipt and is paid 
by the individual. The only direct tax is thus laid on net 
earnings. Corporations also pay the indirect taxes, like the 
stamp tax (droit de timbre^ and the transfer tax (droit de 
transmissioTi) on shares and bonds ; but, simply to facilitate 
the administrative procedure, they may and generally do 
commute for these by paying an annual tax of one-twentieth 
and one-fifth of one per cent respectively on the amount of 
their capital stock. 

In Italy corporations are taxed on their income or net 
earnings just like individuals, by the imposta sui redditi 
della ricchezza mobile. This "revenue of personal property," 
as it is called, is declared to consist, so far as corporations 
are concerned, in "all interest or dividends paid."^ To 
make the term dividends still clearer, the law provides that 
"in the estimate of income are included all sums, under 
whatsoever title, distributed among the shareholders or 
added to capital, surplus or sinking fund or otherwise used 
in cancelling debts." * The Italian system is thus as com- 
prehensive as the English. 

1 Levied in 1874 ; abolished in 1878. 

2 Droit sur les voitures publiques. Cf. Vignes, Traite des Impots en 
France^ 4th edition, i., p. 192. 

* ^' Sono considerati come redditi di ricchezza mobile esistenti nello stato 
. . . gli interessi e diyidendi pagati . . . delle compagnie commerciali, indus- 
triali e di assicurazione." Law of August 24, 1877, art. 3, b. 

* *^ Nel reddito delle societal anonime ed in accomandita per azioni, com- 
presevi le society d^assicurazione mutua od a premio fisso saranno computate 
indistintamente tutte le somme ripartite sotto qualsiasi titolo fra i soci e 



In Germany the taxation of corporations varies widely 
in the different commonwealths. ^ A few of the smaller 
states tax corporations for state purposes only on their 
realty and on their occupation (^Grewerbe-steuer}, and not 
on their income or net profits, because the shareholders are 
individually taxed on their income from the corporations. 
This point will be discussed in detail in the following 
chapter. In most of the states, however, corporations are 
taxed on their income. In Prussia railroads have been 
assessed since 1853 on their net receipts. The local taxes 
vary exceedingly throughout the empire. But whenever 
corporations are taxed at all on receipts, it is on net 
income. Corporations were formerly exempt from the 
local income tax, but they are now usually subject to 
it wherever it exists.'^ In only one instance are corpora- 
tions taxed on their capital stock — in the case of mut- 
ual insurance companies, whose so-called dividends merely 
return in part the premiums paid by policy holders. On 
account of the difficulty of ascertaining the exact profits, 
Baden has therefore levied the income tax on an assumed 
amount of net profits, fixed at five per cent of the capital 


The net receipts tax may thus be declared applicable in 
theory to all corporations. Some peculiar limitations arise, 

quelle portate in aumento del capitale o del fondo di riserva ed ammortizza- 
zione, od altrimente impiegate anche in estinzione dei debiti." Ibid., art. 30. 
Cf. in general, Oronzo Quarta, LHmposta sulla Bicchezza Mobile, 2 vols. 
(Turin). See also Alessio, Saggio sul Sistema Tnbutario in Italia, i., p. 345 ; 
the chapters on Italy in Chailley, rimpot sur le Bevenu ; and Burkart, ♦♦ Die 
italienische Steuer auf die Einkiinfte vom beweglichen Vermogen," in 
Schanz's Finanz-Archiv, vi. (1889), p. 30. 

1 For full details as to corporate taxation in each of the German states, 
see Antoni, " Die Steuersubjecte in Zusammenhalte mit der Durchfuhrung 
der AUgemeinheit der Besteuerung nach den in Deutschland geltenden Staats- 
steuergesetzen," in FinanzArchiv, v. (1888), pp. 382-499, especially 475 

et seq. 

2 Cf. Meier, "Ueber die Frage der Communalbesteuerung " (in Zehn 
Gutachten und Benchte iiber die Communalsteuerfrage, veroffenlicht vom 
Vereinfur Socialpolitik) , p. 104. 

» Lewald, " Die direkten Steuem in Baden," in Finanz-Archiv^ ill, p. 807. 






V ' 


I I 



it is true, from the clashing of commonwealth laws, but these 
will be discussed in the next chapter. 

One objection still remains. It has sometimes been urged 
that a tax on corporate property is more just than a tax on cor- 
porate earnings, because the value of a corporate security is 
fixed not only by its present but also by its prospective pro- 
ductiveness. This is, however, a specious objection, since 
under a system of earnings taxation the future product will 
be taxed when it ultimately appears. If productiveness be ac- 
cepted at all as the standard of capacity — and this is tacitly 
assumed in the above objection — the most logical and defen- 
sible method is the taxation of the product as it appears. 
But consideration for the individual producer makes it neces- 
sary, as has been pointed out above, to regard net, not gross 
product; and, therefore, if any one principle be accepted as the 
basis of the general corporation tax, it should be net profits, 
and not gross earnings or property. 

III. Practical RefortM. 

Our conclusion that the taxation of net receipts is without 
doubt the best system brings us face to face with the facts 
of American constitutional law. Is a tax on receipts uncon- 
stitutional ? Is it in conflict with the constitutional inhibition 
of state interference with interstate commerce ? This is an 
important question. Let us, then, consider the legal as well 
as the economic aspects of the problem.^ 

The earliest important case involving this question con- 
strued the Pennsylvania law which imposed a tax on each ton 
of merchandise carried, and an additional tax of a certain 
percentage on the gross receipts of railroad companies. The 
tonnage tax was declared imconstitutional.2 The same prin- 
ciple was later applied to a tax of one cent for every message 
sent by a telegraph company. This, also, was held to be 
void as a tax on interstate commerce.^ On the other hand, 

1 See in general, Professor Goodnow's article on »» Taxation of Railway 
Gross Receipts," in Political Science Quarterly, ix., p. 233. 
« State Freight Tax Cases, 16 Wall. 232 (1872). 
• Telegraph Co. vs. Texas, 106 U. S. 460 (1881). 



a state tax on the gross receipts of a domestic railroad com- 
pany was upheld chiefly on the ground that the tax was laid 
upon a fund which had already become property. The gross 
receipts were said to be the fruits of transportation after 
they had become intermingled with the other property of 
the carriers.^ The court, however, also contended that this 
was a tax on the franchise, measured by the amount of the 
business transacted, so that it was not clearly decided what 
was taxed, the franchise or the property.^ Later the 
Supreme Court limited this general principle and decided 
that when the gross receipts, even of a domestic corporation, 
were derived entirely from interstate or foreign commerce, 
they could not be taxed. ^ 

In the case of foreign companies, the rule seems to be more 
strict ; for a tax on the gross receipts of a foreign corpora- 
tion, even if derived only in part from interstate commerce, 
is declared void to the extent that the receipts are derived 
from such interstate commerce.* A tax on the gross re- 
ceipts from business done wholly within the state is, how- 
ever, valid.* 

This distinction between foreign and domestic companies 

1 State Tax on Railway Gross Receipts, 15 Wall. 284 (1872) . This was in 
imitation of the case of Brown vs. Maryland, which held that articles lost 
their character of imports after they had left the original package or the 
hands of the original importer, and had then become a part of the general 
property of the state. But see the second note following. See also Balti- 
more and Ohio R. R. Co. vs. Maryland, 21 Wall. 466 (1874), which held that 
a charter stipulation that a railway should pay a part of its earnings to the 
state as a bonus, was not a tax, and was perfectly valid. 

2 In Fargo vs. Michigan, 121 U. S. 210, the court emphasizes this side of 
the Railway Gross Receipts Tax decision. For a recent case, see People ex 
rel. R. R. Co. vs. Campbell, 74 Hun 210. 

» Philadelphia S. S. Co. vs. Pennsylvania, 122 U. S. 326 (1886). In this 
case the court showed that the case of Brown vs. Maryland was really no 
authority for the decision in the case of the State Tax on Railway Gross 
Receipts, decided fifteen years before. 

* Fargo vs. Michigan, 121 U. S. 230 (1886) ; Western Union Telegraph Co. 
vs. Alabama Board of Assessment, 132 U. S. 472 (1889). Cf. Coe vs. Errol, 
116 U. S. 517 (1886). 

6 Ratterman vs. Western Union Telegraph Co., 127 U. S. 411 (1888). 




♦ ' 


I .« 

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• i 





< ! 

•I I 

seems to be maintained in a recent leading case. The Maine 
tax on gross receipts was upheld as being a tax not on 
receipts, but on the privilege of exercising the corporate 
franchise, the resort to receipts being made simply to ascer- 
tain the value of the business. But although this action was 
brought nominally against a foreign corporation, the facts 
show that the tax was due from a domestic corporation 
leased by this foreign corporation. ^ 

The reason for the distinction between domestic and for- 
eign corporations seems to be that in the case of a domestic 
corporation the thing taxed is the franchise, which may be 
measured at the discretion of the legislature (except that 
when all receipts are from interstate commerce the tax is 
invalid) ; while in the case of a foreign corporation the fran- 
chise cannot be taxed, but only the business. Since the thing 
taxed in the latter case is the business, the constitutional 
provision is violated whenever that business is so extended 
as to include interstate commerce.^ 

The same distinction which is observable in the Gross 
Receipts Tax cases has been maintained in others. Thus a 
license tax on foreign companies doing an interstate busi- 
ness is held invalid because it is a tax on the privilege of 
doing interstate commerce ; ® but a license on a domestic cor- 
poration for boats used in interstate commerce is valid.* So, 
too, a privilege tax upon every sleeping car belonging to a 
foreign corporation has been declared unconstitutional as a 
regulation of interstate commerce; * but when the sleeping cars 
are run wholly within the state over the line of a domestic 

1 Maine vs. Grand Trunk R. R. Co., 142 U. S. 217 (1891). The real party 
to the case was the Atlantic and St. Lawrence R. R. Co. 

2 Cf. Horn Silver Mining Co. vs. New York, 143 U. S. 305. 

* United States Express Co. vs. Allen, 39 Fed. Rep. 712 ; Leloup vs. Port 
of Mobile, 127 U. S. 640 ; Krutcher vs. Kentucky, 141 U. S. 47. 

* Wiggins Ferry Co. vs. East St. Louis, 107 U. S. 366 (1882). Cf. Osbom 
vs. Mobile, 16 Wall. 479 (1872), where a license fee was imposed on an agent 
of an express company doing business in Mobile. 

6 Pickard vs. Pullman Southern Car Co., 117 U. S. 34 (1886). It was dis- 
tinctly held that the cars in question had no situs in the state (Tennessee) 
imposing the tax. 



corporation, the tax is valid.i Again, a tax proportioned to 
capital stock and dividends is valid as to domestic corpora- 
tions even though they be engaged in interstate coinmerce ; 
but if the business of a foreign corporation is interstate 
commerce exclusively, the tax on capital stock is void.3 
On the other hand, even though the tax be imposed on a 
foreign corporation, if it is assessed not on the business 
itself, but on the capital stock or property according to 
mileage, and if the corporate property is actuaUy situate 
in the state, it will be upheld.* 

The law, therefore, seems to distinguish in part between 
foreign and domestic companies. Yet in the recent Maine 
case, the tendency of the court, although it is expressed only 
in a dictum, seems to be opposed to this distinction; and the 
reasoning of the court would tend to uphold a gross receipts 
tax, whether imposed on domestic or on foreign corpora- 
tions, provided any of the receipts be earned within the state.^ 

1 Gibson County vs. Pullman Southern Car Co., 42 Fed. Rep. 512 (1890). 
Whether the counties may levy such a tax depends entirely upon the author- 
ization which must be express, given them by the state law. 

2 People vs. Wemple, 117 N. Y. 136 (1889). , ^^^^ ^ ^M^. 
« People ex rel. Pennsylvania R. R. Co. vs. Wemple, 138 N. Y. (1893). 

This was the case of a railroad corporation whose line terminated without the 
state but which had terminal facilities within the state for the delivery of 
passengers and freight, the sale of tickets and the collection of dues. A some- 
what similar case was that of Gloucester Ferry Co. vs. Pennsylvania, 114 U. S. 
196 a885) . Here the state attempted to impose a tax on the capital stock of a 
New Jersey company having no property in Pennsylvania except a wharf 
in Philadelphia. This tax was held void, as an interference ^th interstate 
commerce. Another similar ca^e was that of Norfolk and Western R R. 
Ce. vs. Pennsylvania, 136 U. S. 114 (1890). The railway had no line 
in the sUte. but haa an office there, and traffic contracts which made it a 
part of a system doing interstate business. A tax on capital stock of this 
corporation was held invalid, a^ interfering with interstate commerce. 

4 Pullman Car Co. 1,8. Pennsylvania, 141 U. S. 18 (1890) ; Pullman Pal- 
ace Car Co. vs. Assessors, 56 Fed. Rep. 206 (1893). Cf. Telegraph Co. vs. 
Massachusetts, 125 U. S. 530 (1890). 

6 "The privilege of exercising the franchises of a corporation withm a 
state is generally one of value, and often of great value and the subject of 
earnest contention. It is natural, therefore, that the corporation should be 
made to pay some proportion of the burdens of the government. As the 



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> I' . 




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YX, is greatly to be hoped that this dictum may soon be 
developed into law, for from the economic point of view 
the distinction between domestic and foreign corporations 
is entirely indefensible. Strictly carried out, it would 
render substantial justice in taxation almost impossible. 
If a foreign corporation cannot be taxed where its earnings 
are received, because it is a foreign corporation ; and if 
it cannot be taxed by the state of its domicile, because 
the earnings are not received there, it would manifestly 
evade its due share of the burden. But if every state 
could tax the receipts of any corporation, so far as they 
are actually earned within the state, no corporation could 
escape under the plea of its foreign origin, and the founda- 
tions would be laid for an equitable system based on inter- 
state agreement. The force of the constitutional provision 
would, moreover, still be sufficiently strong to prevent unjust 
discriminations against foreign commerce or foreign business. 
Even granting that under the present interpretation of 
the law a tax on the gross receipts is invalid, the case is 
not yet closed in relation to a tax on net profits or income. 
If a gross receipts tax is unconstitutional, will not a net 
receipts tax be equally so ? An ohiter dictum of the court 
might lead us to suppose that there is a legal distinction 
between a net income and a net receipts tax, and that the 
former, as applied to transportation companies, is permis- 
sible.^ In the memorandum of a new system of taxation 

granting of the privilege rests entirely in the discretion of the state, vohetkw 
the corporation be of domestic or foreign origin, it may be conferred upon 
such conditions, pecuniary or otherwise, as the state in its judgment may 
deem most conducive to its mterests or policy. . . . The character of the 
tax or its validity is not determined by the mode adopted in fixing its amount 
for any specific period or the times of its payment. . . . The rule of appor- 
tioning the charge to the receipts of the business would seem to be eminently 
reasonable, and likely to produce the most satisfactory results both to the 
state and the corporation taxed." Justice Field, m Maine vi. Grand Trunk 
R. R. Co., 142 U. S. 217 (1891). 

1 The court holds that the gross receipts tax is unconstitutional because it 
is a tax not on income, but on receipts, i.e. on transportation. Query : would 
not a tax on income then be constitutional ? See 122 U. S. 345. 



published by a member of the revenue commission of Penn- 
sylvania, it is assumed that such a tax does not fall within 
the scope of the recent decisions, but is perfectly consti- 
tutional.i Xhis would be a result much to be desired; 
but it must be confessed that the final opinion of the court 
is problematical, in view of its extreme sensitiveness to any 
interference with interstate commerce.* 

If the decision of the court should be adverse, only one 
course would remain open in regard to transportation com- 
panies. Granting that a tax on net receipts is the best, and 
that a state tax on net receipts is declared illegal, there 
might be a national net receipts tax. The federal law might 
impose a tax on net receipts, providing for the levy, if 
necessary, by the commonwealth officials themselves, and 
apportioning the proceeds according to the mileage in each 
state. Such a plan would be free from objections of an 
economic nature and would avoid many of the difficulties 
connected with double taxation. The principle would be 
analogous to that of the English "grants in aid." But 
however desirable such a plan would be, it is doubtful 
whether the national government has the constitutional 
right to levy a tax for such purposes. Entirely apart from 
the question of power, moreover, it must be confessed that 
such a federal tax on net earnings is improbable, at all events 
in the near future. As we are seeking not only the ideal, but 
also the practicable, some other plan must be devised. 

The only other method of taxing transportation com- 
panies which at all deserves approbation is that first em- 
ployed in Connecticut, and since then in several other 
states, VIZ., laying the tax on the market value of the 
stock plus the indebtedness, in the proportion that the 
mileage within the state bears to the total mileage. This 

1 John A. Wright, Memorandum of a System of Taxation, submitted to the 
Commission for Revision of the Bevenue Laws of Pennsylvania (1890), pp. 
10, 13. 

* ** In imposing [franchise] taxes care should be taken not to interfere 
with or hamper directly or by indirection interstate or foreign commerce." 
122 U. S. 345. Cf 127 U. S. 648. 






I • 



would be applicable to railway, telegraph, telephone and 
express companies, but of course not to ocean or coastwise 
steamship companies, which have no mileage within any 
state. Connecticut, as we know, applies the tax only to 
railroads. Such a tax would be certain, simple of en- 
forcement, and would attain justice as among the separate 
states. As we have seen, it would not attain perfect 
justice as among the separate corporations ; yet it is so far 
superior to all the other methods which have been discussed, 
that it can be strongly recommended as the type to which 
the commonwealths should conform their taxation of trans- 
portation companies, if the net receipts tax be pronounced 
unconstitutional. As to all other corporations, however, 
where the constitutional limitation would scarcely ever 
apply, the logical and practicable system would be to tax 
them on their net revenue according to carefully defined 
rules. Wherever special conditions prevent the emplojrment 
of this method, they should be taxed on a valuation equal 
to that part of the market value of the capital plus the 
bonded debt employed within the state. 

This, therefore, is our general conclusion; but it does 
not yet exhaust the problem of corporate taxation. We 
are, in fact, only on the fringe of the difficulties. Let us 
proceed in the next chapter to study some of the more com- 
plicated questions. 

Note of 3d Ed. — A new step in the taxation of franchises has been 
taken by New York in 1899. The law taxes as a "special franchise" the 
privilege conferred upon quasi-public corporations to make use of city streets 
and public places, either on, above, or below the surface. This franchise is 
to be assessed as real estate, and the proceeds devoted to the locality. The 
ascertainment of the values of this franchise is left, not to the local assessors, 
who still tax the corporation upon the visible real estate and the personalty, 
but to the State Board. See in general, Seligman, *' The Franchise Tax Law 
in New York," Quarterly Journal of Economics, xiii., pp. 445-462. A 
somewhat similar " special franchise " tax law was enacted in New Jersey 
in 1900. 






The discussion of the taxation of corporations would be 
incomplete without an examination of the various phases 
of double taxation. This is the more necessary for the 
reason that no attempt at a thorough analysis has ever yet 
been made. Yet the problems that hinge upon this par- 
ticular question are so especially important in the United 
States as to demand the most serious attention. 

In a former chapter ^ we have already discussed some of 
the general aspects of double taxation. Let us now attempt 
to develop the principles in the light of actual practice. 

There are in reality no less than five different forms of 
double taxation in the case of corporations : — 

1. Double taxation of property and of debts, or of income 
and of interest on debts. 

2. Double taxation of property and of income. 

3. Double taxation of property and of stock. 

4. Double taxation arising from conflicts of jurisdiction. 

5. Double taxation of the corporation and of the holders 
of stock or bonds. 

I. Taxation of Property and of Debts, 

This first case need not detain us long. The only illustra- 
tions in the United States are found under the general 

1 Supra, chap. iv. 


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I J 



property tax, which we have discarded as the basis of cor- 
poration taxation. In many of the states corporate debts 
must be considered in estimating the value of the capital 
stock. In New York, as regards local taxation, the indebt- 
edness must be taken into account in assessing the capital 
stock ; but after the valuation has been fixed, the amount 
of the indebtedness cannot be deducted.^ If the capital 
stock is of no value because the indebtedness exceeds the 
assets, it should not be assessed. * In the case of foreign 
corporations, however, which are taxable on the amounts 
invested in the state, it has been held that the law does not 
contemplate the deduction of debts. ^ 

We have already pointed out that there is really no 
injustice in not exempting corporate indebtedness. The 
issue of mortgage bonds by a corporation is simply 
another mode of increasing the working capital. Correct 
policy demands the taxation of corporate bonds as well as 
of stock, of loans as well as of share capital. To tax cor- 
porate debts may, indeed, be called double taxation in so 
far as the tax on both stock and debt is paid out of the 
same income ; but if so, it is double taxation of a perfectly 
legitimate kind. It is here that the principles of indi- 
vidual and corporate taxation diverge. 

Some of the American commonwealths, as California, 
Connecticut, Maryland and Pennsylvania, recognize this 
distinction between the taxation of individuals and that 
of corporations, by permitting the deduction of indebted- 
ness from the property of individuals but refusing a like 
deduction in the case of corporate property. In California, 
the courts held distinctly that what would be double taxa- 
tion in the case of individuals is permissible in the case 
of corporations.* Some of the Swiss cantons, like St. Gall, 
Zurich and Ticino, observe the same distinction.* 

1 1 Thomp. and C. 636 ; 100 N. Y. 697 ; 112 N. Y. 666. 

* People vs. Commissioners, 31 Hun 32 (Ist Department). 
» People vs. Barker, 141 N. Y. 118. 

* Central Pacific R. R. Co. vs. Board of Equalization, 60 Cal. 36. 

5 Schanz, Die Steuem der Schweiz, ii., p. 338 ; ii., p. 435 ; iy., p. 281. 



Perhaps more interesting and probably of greater future 
importance in the United States is the other phase of this 
question of the taxation of indebtedness — double taxation 
of income and of interest on debt. While the true theory 
of income taxation in the case of individuals demands the 
deduction of interest on debts, it has already been shown 
that in the case of corporations the interest paid on mort- 
gage bonds must be included in the taxable income. Taxa- 
tion of interest on corporate debt is not double taxation, 
because the coupons, like the dividends, are integral parts 
of the income ; because both bonds and stock together form 
what is really the working capital from which the income is 
derived. This question has already been discussed; but 
the radical difference in economic significance between a 
corporate bond and an individual debt must be continually 
borne in mind. 


II. Taxation of Income and of Property, 

This second form of double taxation, like the first, in- 
volves no very complicated question ; nor does the solution 
present many difficulties. Is it permissible to tax a cor- 
poration both on its property and on its net receipts or 
income? If corporations are put upon the same plane as 
individuals, the simultaneous taxation of the property and 
of the income from the property works no injustice. As 
we have seen above \ if all are treated alike and if the tax 
is uniform, there is really no cause for complaint. 

So far as corporations are concerned, this is not a matter 
of practical importance. The only case in which this special 
question has arisen in the United States was under the laws 
of Alabama, now repealed, which provided for the taxation 
of corporate property and also of the corporate income dur- 
ing the preceding year.^ Such taxation was upheld on the 

1 Supra, pp. 97-98. 

« Ala. laws of Feb. 22, 1866 ; Feb. 19, 1867 ; Dec. 31, 1868 ; March 19, 
1876 ; March 6, 1876. 


I . 






1 i 

1 1 

ground that it was only apparently double taxation.^ What 
the court meant was, of course, not that it was not double 
taxation, but that it was not invalid or economically unsound 
taxation. In this the court was correct, for the law applied 
equally to all individuals and to corporations. 

At present in the United States no attempt is made to 
tax simultaneously both corporate property and corporate 
income. The nearest approach to the practice is the system 
in Pennsylvania and New York of taxing the capital stock 
and also the gross receipts of certain corporations. No objec- 
tion has been raised to these taxes on the score of double 
taxation ; nor is it likely that such an objection ever will be 
raised. One might as well object to a combination of direct 
and indirect taxes as involving duplicate taxation, on the 
ground that all taxes are in the last resort paid (or presumed 
to be paid) out of annual income. So, again, in some of the 
Southern and Western states, as we know, corporations are 
taxed on their business, by license or occupation taxes, and 
again on their receipts, and this practice is upheld as per- 
fectly valid.* This second form of double taxation is en- 
tirely proper. 

The classic home of double taxation of this sort is Switzer- 
land. Baselstadt, for instance, taxes corporations one per 
mill on the paid-up capital, a quarter of one per mill on 
the capital not yet paid up, and one per cent on the total 
net income from all sources.^ In Baselland corporations are 
taxed on their general property and again on their total 
profits, with the exception that when any of the profits 
consist of interest on capital the profits are not taxed if the 
capital has already been assessed.* Many of the cantons, 
however, seek to avoid the simultaneous taxation of prop- 
erty and income by an arrangement of the following sort: 


1 Board of Review vs. Montgomery Gas Light Co., 64 Ala. 276. Cf. Lott 
M. Hubbard, 44 Ala. 593. 

' Cf. 95 Mo. 360, where the court holds that it is not duplicate taxation. 

» Law of 1889, §§ 2, 3. Schanz, Die Steuern der Schweiz, ii., p. 84 ; v., 
p. 50. * Schanz, op. eit., i., p. 56 ; v., p. 35. 



While the law provides for the assessment of both prop- 
erty and income, a deduction is made in the case of the in- 
come tax for so much of the income as is supposed to repre- 
sent the actual profits of the capital already taxed. The 
proportion thus deducted is fixed in accordance with the 
estimated current rate of interest, ranging from four per 
cent in Thurgau and Grisons to five per cent in Zug, Schaff- 
hausen, Ticino, Vaud and Zurich. The federal government 
deducts five per cent.i This principle has now also been 
applied in Prussia, where since 1891 the income tax is as- 
sessed on corporate income, after deducting a sum equal to 
three and a half per cent of the paid-up capital.^ Bern and 
St. Gallen are the only Swiss cantons which attempt to draw a 
sharper line by levying the property tax only on the cor- 
porate real estate, but subjecting all the other property to 
an income tax.s In St. Gallen the real estate tax is for 
local, the income tax for cantonal purposes. 

The solution of the supposed difficulty attempted by the 
majority of the Swiss commonwealths is, however, not a 
happy one. The deduction from income of the four or five 
per cent, assumed to represent the earnings of property, 
involves a misconception. It is impossible to say how much 
of the income represents earnings of capital and how much 
represents the other ingredients of profit. We are brought 
face to face with complicated questions of economic theory 
— with the distinction between interest and profits, and the 
separate ingredients of profits. A discussion of these ques- 
tions lies beyond the province of this essay. But it may 
be confidently asserted that if a railway corporation with no 
bonded indebtedness and a capital of one million dollars 
earns seventy-five thousand dollars, it is impossible to main- 
tain that fifty thousand dollars represents the earnings of the 
property and the remainder the earnings of the management. 
From one point of view all such profits are profits on capital 

1 Ihid., i., p. 56. 

* Einkommenstetiergesetz vom 24 Juni, 1891, § 16. 

» Schanz, op. cit, ii., pp. 318, 368 ; iii., p. 292. 




\4 I •! 



or property. An individual can indeed obtain a professional 
income without any capital ; but in the case of a business 
with capital invested, it is impossible to say how much of the 
profits are due to the capital, how much to the personal 
management. Without the capital there would be no profits 
at all, because there would be no business. Therefore, in 
taxing profits we are really taxing property, or rather the pro- 
ceeds of property. To segregate a part of these proceeds and 
to say, as do the Swiss cantons, that only this particular 
part represents the income from the property, is an entirely 
arbitrary proceeding. 

Again, it cannot be contended that even this four or five 
per cent of income exempted by the Swiss laws represents 
only the interest on the capital, and that the remainder 
of the income represents the earnings of management. 
Under no theory of economic profits can the surplus above 
current interest be entirely dissociated from capital. Even 
granting that a sharp line can be drawn between interest, 
earnings of management and profits, it stiU remains incor- 
rect to confine the proceeds of capital to interest alone. 
It is thus inadmissible to say that in taxing income only on 
the surplus above four or five per cent of the taxable capital 
we avoid taxing both property and income. 

The Swiss system has indeed a very decided significance 
in connection with an entirely different matter, viz,, the 
question of funded or unfunded income. But as regards 
the point now under discussion it is evident that the Swiss 
cantons do not really succeed in avoiding double taxation. 
As we have seen, however, it is a form of double taxation 
which is in itself legitimate. 

III. Taxation of Property and of Stock. 

This third form of duplicate taxation must not be under- 
stood to refer to the taxation of shares of stock in the hands 
of individuals. That is a different problem, and falls under 
another heading, to be discussed below. The point here to 




be discussed is this : Is it permissible to tax the corporation 
on its property and again on its capital stock ? 

The answer is plain. Manifestly not, if the corporate 
stock can be regarded as representmg actual property. We 
have, indeed, seen that it is a mistake, economically, to say, 
as do some of our courts, that the entire property of a cor- 
poration is identical with its capital stock. This point has 
been brought out so well in a Massachusetts case, and is so 
generally misunderstood, that it may be wise to make a 
more extended quotation from the decision : — 

The market value of the shares of a corporation . . . does not 
necessarily indicate the axjtual value or amount of property which 
a corporation may own. The price for which all the shares would 
sell may greatly exceed the aggregate of the corporate property, 
or it may fall very far short of it. Undoubtedly the amount of 
property belonging to a corporation is one of the considerations 
which enter into the market value of its shares ; but such market 
value also embraces other essential elements. It is not made up 
solely by the valuation or estimate which may be put on the cor- 
porate property, but it also includes the profits a^d gams which 
have attended its operations, the prospect of its future success 
the nature and extent of its corporate rights and privileges, and 
the skill and ability with which its business is managed. In other 
words, it is the estimate put on the potentiality of a corpora, 
tion, on its capacity to avail itself profitably of the franchise and 
on the mode in which it uses its privileges as a corporate body, 
which materially influences and often controls its market value. 

While it is true, therefore, that capital stock and total prop- 
erty are not interchangeable terms, it cannot be denied on 
the other hand that the capital stock represents at all events 
a part of the property, or rather that the corporate property is 
one of the elements that contribute to the value of the capital 
stock. So far as this is true, the simultaneous taxation of 
corporate property and corporate stock involves, to this 
extent at least, duplicate taxation of an unjust character. 

1 Commonwealtli vs. HamUton Manufacturing Co.. 12 Allen 303. 


I <i 









I . 


Unfortunately, there is no absolute uniformity in the 
legal decisions on this point. While the majority of the 
commonwealths hold taxation of this kind to be unjust, 
Pennsylvania has pronounced it valid. In a celebrated case 
the court used this language : — 

Double taxation has never been considered unlawful in this 
state. The real and personal property of a corporation may be 
taxed; although it pays a tax on the stock which purchased it. 
The power of the legislature is as ample to tax twice as to tax 
once, and it is done daily as all experience shows. Equality of 
taxation is not required by the constitution.^ 

Such a decision may be correct legally, but beyond all 
doubt it is unsound economically. Equality of taxation 
may not be required by the constitution of Pennsylvania, 
but it is one of the first laws in the science of finance. 
Abandon equality, and you throw the door wide open to all 
kinds of glaring abuses. The theory as formulated by the 
Pennsylvania courts cannot possibly be upheld from the 
scientific standpoint. 

The Pennsylvania courts, however, hold that so far as 
the capital stock of a domestic corporation represents tangi- 
ble property outside of the state it is not taxable.^ Further, 
it has recently been decided that the real estate of a corpora- 
tion, being part of its capital stock and paying state taxes, is 
not locally taxable.^ Finally, in another case it has been held 
that so far as the property of a corporation is essential to 
the exercise of its corporate franchise, it is included in the 
capital stock and is not taxable. The law will not subject 
it to duplicate taxation by mere inference.* Thus Pennsyl- 
vania is gradually abandoning its earlier decisions. 

Far wiser from the very beginning were the Maryland 

1 Pittsburgh etc. R. R. Co. ts. Pennsylvania, ^ Pa. State 77. Cf. Lacka- 
wanna Iron Co. tjs. Luzerne County, 42 Pa. State 424. 

2 101 Pa. State 119 ; 41 Legal Intelligencer 126. 
• 7 Lane 317. 

« 148 Pa. State 162 ; 148 Pa. State 282. See also 145 Pa. State 96. 

I i 




courts, which held that all laws must be so construed as to 
avoid double taxation of this kind ; and that, since in their 
opinion the capital stock of a corporation represents the cor- 
porate property, the payment by the corporation of a tax on 
capital stock necessarily exempts all the corporate property.^ 
In this broad form the decision is perhaps open to criticism 
because of the complete identification of capital stock with 
corporate property ; but as regards the. point at issue here, 
it is correct. To tax corporations simultaneously on their 
stock and on their property is indefensible. A few common- 
wealths, like Alabama, Illinois, Indiana, Maryland, Vermont 
and (for local purposes) New York, have now recognized 
this principle in their statutes, deducting from the value of 
the capital stock the value of the realty or of both the real 
and personal property taxed.* 

On the other hand, the apparently similar statute of 
Massachusetts, which taxes corporations on their capital 
stock less the value of the real estate and machinery,^ is 
open to criticism for another reason. According to the 
Massachusetts law, corporations are taxable by the local 
bodies on their real estate and machinery, but at a rate 
equivalent to the combined rate for local and state purposes. 
They are then taxable by the state on the value of their 
capital stock, deducting the value of the real estate and 
machinery ; but this state tax is fixed at a rate equivalent 
to the combined local and state rate on general property. 
While, therefore, Massachusetts avoids double taxation of 
both property and stock, it does not solve the problem of 
affording the commonwealth government an adequate reve- 

1 County Commissioners ©s. National Bank, 48 Md. 117. Cf, State t>«. 
Stirling, 20 Md. 520 ; State w. R. R. Co., 40 Md. 22. 

2 Md. law of 1878, in Pub. Gen. Laws, art. 81, §§ 84, 85, 141-144 ; Ala. 
Code, § 453, sec. 8 ; 111. Rev. Stat., chap. 120, § 3 ; Ind. Laws of 1891, 
chap. 4 ; New York Laws of 1857, chap. 456, § 3, vol. 2, p. 1 ; Vt. Rev. 
Laws, § 288. In New York, as we know, corporations are locally taxable 
on their realty and their capital stock, deducting the amount invested in real 

8 Mass. Pub. Stat., chap. 13, § 4Q 


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I..' f 

(■' .ji 




" 1 



nue. According to the theory elsewhere elaborated in these 
chapters, corporations should always be locally taxable on 
their realty ; but the commonwealth tax should be levied 
on the total income, or on the total property, without any 
deductions (except those arising from considerations of 
interstate comity and equity, to be discussed below). The 
whole treatment of double taxation is here based on the 
assumption that the tax is levied by administrative units of 
the same grade, whether states or local divisions. It mani- 
festly does not apply to cases where one tax is levied by the 
commonwealth, and another similar or different tax is levied 
by the county or city, as in Massachusetts. Otherwise we 
should be forced to the conclusion that the property tax 
always involves a double, triple or quadruple taxation 
so far as state, county, town and village levy different 
rates on the same property. This is, however, only a 
juggle with words; such taxation is not in the scientific 
sense double taxation. Strictly speaking, therefore, the 
Massachusetts principle, while ostensibly sound, is really 
incorrect. So far, however, as it attempts to solve another 
problem — that of the division of the tax between the 
place where the corporation carries on its business, and the 
place where the stockholder resides — the law is deserving 
of consideration. But that is a point which belongs properly 
to one of the subsequent sections. 

In Switzerland, we find, in the few cases where both 
tangible property and capital are assessed, that the value 
of the taxable property is deducted from the corporate capi- 
tal. Thus the new constitution of 1885 in Aargau provides 
for the taxation of the corporate real estate for both com- 
monwealth and local purposes, the value of the realty being 
then deducted from the capital stock. ^ The same custom 
prevails in Schaffhausen.^ The Swiss tendency, like the 
American, is gradually coming to be in accord with the 
sounder principles. 

1 Schanz, Die Steuern der SchweiZt ii., p. 239. 
* Ibid., ii., p. 170 (note 1). 

We come now to the most important aspects of double 
taxation — the fourth and fifth forms. Here we have the 
benefit of a wide European experience. In the phases of 
duplicate taxation hitherto treated we can learn very little 
from Europe, because in no European state except Switzer- 
land are the corporations taxed on their property as a 
whole ; and in Switzerland the entire question of corpora- 
tion law is in a far more inchoate condition than in the 
more developed industrial states. But the problems that 
we now take up present themselves in Europe as well as in 
the United States, and have there received in some respects 
extended consideration, although they have not yet been 
successfully solved. 

IV. DoMe Taxation due to Conflicts of Jurisdiction. 

This fourth form of duplicate taxation appears in connec- 
tion with almost every method of corporate taxation. It is 
so comprehensive that it will be advisable to discuss the 
subject under four chief headings : — 

1. Interstate taxation of corporate property. 

2. Interstate taxation of stock and bonds or of dividends 

and interest. 

3. Interstate taxation of non-resident stockholders or 


4. Interstate taxation of corporate receipts or income. 

1. Interstate taxation of corporate properti/. The diffi- 
culty here arises in connection with the taxation of personal 
property. In the case of real estate the rule universally 
adopted in the United States is that the property should be 
taxed where it is situated, and there is accordingly no chance 
for interstate complications. But in the case of personalty 
the great problem is that of situs. Should the personalty 
be taxed where it is situated or should it follow the domicile 
of the owner? The legal conditions in the United States 
are most unsatisfactory. 










We have seen in another place ^ that the American states 
waver between the principles of %itu% and of mohilia personam 
sequuntur, — that is, some tax only the personalty actually 
situated in the state ; while others tax all the personalty, 
no matter where situated, of a resident. The same piece 
of personal property may therefore be taxed in two states. 
The obvious result, of course, is double taxation of a nature 
which cannot possibly be justified. 

In the case of corporations, we are confronted by precisely 
the same difficulties, for corporate property is treated in 
the main like that of individuals. It is entitled to the same 
exemptions and subject to the same conditions. It will be 
readily perceived, however, with what difficulties the prob- 
lem is beset when, as is usually the case, the personalty of a 
corporation is assessed at its place of business as the legal 
situs. In many states, like Michigan, Pennsylvania and New 
York, it has been held not permissible to tax corporations 
for property outside the state ;* and in South Carolina the 
tax is specifically limited to corporate property within the 
state. ^ In other cases it has been held that the movable 
property of a corporation in use in other states is taxable 
only in the state of the corporation's domicile.* In Penn- 
sylvania, it has been held that corporate property, consisting 
of dredges, etc., not permanently located anywhere, may be 
taxed in the state of the corporation's domicile as part of the 
stock. ^ Some states, like New York and California, apply 
the same rule to corporate as to individual property, and 
seek to avoid double taxation of this kind. In New York, in 
order to exempt the personal property of a corporation be- 

1 Supra, p. 112. 

* State Treasurer ex rel. vs. Auditor-General, 46 Mich. 224 ; Graham vs. 
Township of St. Joseph, 67 Mich. 652. 

« S. C. Rev. Stat chap. 12, sec. 28. For other cases, see Commonwealth 
vs. Railroad Co. , 145 Pa. State 96, distinguishing Commonwealth vs. Dredg- 
ing Co., 122 Pa. State 386; Commonwealth vs. Westinghouse Air Brake 
Co., 151 Pa. State 276 ; Commonwealth vs. St. Bernard Coal Co., 9 South- 
western Reporter 709 (Ky.). 

* Baltimore and Ohio R. R. Co. vs. Allen, 22 Fed. Rep. 376. 

< Commonwealth vs. American Dredging Co. , 122 Fa. State 386. 



cause it is outside of the state, the change of location must be 
permanent and unequivocal.^ But in most of the states the 
rule mobilia personam sequuntur is applied, and domestic 
corporations, at all events, are taxed on their whole property.^ 
In the case of foreign corporations, however, it is fast 
becoming the custom, even in most of the states which levy 
a corporate property tax, to exempt the intangible property, 
on the principle that the domicile of the foreign corporation 
is not changed by its doing business in other states.^ 

Manifestly, if the commonwealths will still cling to the 
policy of taxing the actual corporate property, the only logi- 
cal and just method is for each state to exempt so much of 
the corporate property as is already taxable in another state. 
The federal government has unfortunately not exercised its 
right, — if indeed it possesses any — to compel such uni- 
formity. Our only hope, therefore, lies in the progress of 
correct public sentiment and its influence on commonwealth 
legislation. Until then, we shall still be confronted by the 
present confusion. 

2. Interstate taxation of corporate securities. The evils 
arising from the simultaneous taxation by different states of 
the same corporate stock or bonds or of dividends and inter- 
est have been so patent as to lead to statutory changes and 
judicial interpretations of considerable importance. In Penn- 
sylvania, after being long the custom, it has now been 
judicially decided to be the law, that the tax on capital stock 
applies not to the whole capital but only to such a proportion 
of the capital stock as is employed, either actually or con- 

1 People ex rel. Pacific Mail S. S. Co. vs. Commissioners, 64 N. Y. 541. 
As to how the realty outside the state should be valued, see 52 Hun 93 ; 
People ex rel. Panama R. R. Co. vs. Commissioners, 104 N. Y. 240 (1887). 
For California, see San Francisco vs. Fry, 63 Cal. 470 (1883) ; San Francisco 
vs. Flood, 64 Cal. 504 (1884). 

2 So, for instance, in New Jersey personal property outside of the state, 
which is exempt in the case of individuals, is taxable when owned by cor- 
porations. State vs. Metz, 3 Vroom 199 ; State vs. Haight, 6 Vroom 279. 

» Of. Insurance Co. vs. Assessors, 44 La. Ann. 760. Cf. ibid.t 765. 




1 ' ^ 






structively, within the state.^ In New York, the original 
statute attempted to follow the old rule ; but the law has 
now been so amended as to provide expressly for the taxation 
of only so much of the capital stock as is employed within 
the state. 2 In a case which arose under the old statute, 
although decided after the passage of the amendment, the 
court of appeals declared itself forced to adhere to the old 
rule, saying that, although it was extremely hard and unjust, 
the court was unable so to construe the statute as to relieve 
the corporation from the provisions of the law.^ The prin- 
ciple in both these commonwealths now applies equally to 
domestic and to foreign corporations. In Massachusetts, 
however, where the franchise tax, as we have seen, is appli- 
cable only to domestic corporations, the general corporation 
tax is levied on the total capital stock irrespective of its 

So far as railroads are concerned, it has become the common 
practice to assess only so much of the capital stock as is rep- 
resented by the proportion which the mileage in the state 
bears to the total mileage. This is true even in states 
like Massachusetts, which do not apply the principle to 
corporations in general, as well as in states like Connecticut, 
where stock and bonds are taxable. Such a standard, while 
not perfectly exact, is fairly accurate ; and has been up- 
held as entirely constitutional.* It is applicable equally 
to telegraph companies and to other transportation com- 
panies ; and is gradually being applied to them, although 
not quite so commonly as in the case of railroads, in all those 
states which tax capital stock directly. The principle is 
sound, although it may be contended with justice that busi- 
ness done, i,e, receipts, is an even better test than mileage. 

1 Commonwealth m. Standard Oil Co., 101 Pa. State 119. As to the 
previous custom, etc., see Decisions of the Auditor-General, 1878-80, 
p. 296. 

2 New York Laws of 1885, chap. 601, p. 868. 

» People vs. Horn Silver Mining Co., 106 N. Y. 76, especially 88. 
* Delaware Railroad Tax Case, 18 Wall. 208 ; Erie Railroad vs. Pennsyl- 
vania, 21 Wall. 492. 



For other corporations, however, it will readily be seen 
how vague is the New York and Pennsylvania doctrine of 
"capital employed within the state." What business firm 
or corporation with ramifications all over the country can 
tell exactly or even approximately how much of its capital is 
"employed" within any one state? Even if they can, 
how many of them will tell, when concealment wiU enable 
them to evade the tax? In some of our commonwealths the 
state officers have the right to inspect the books of corpo- 
rations and to change the assessments if they deem them 
too low. Even then, what guarantee is there that they will 
discover the real proportion? The taxation of so much of 
the capital as is employed within the state is extremely 

difficult. v 1 J • • 

It is interesting to notice some recent New York decisions 
on this point. A Massachusetts corporation — a telephone 
company — was taxed in New York by assessing the 
whole capital in proportion to the number of telephones 
used in the state. Although the whole tax was declared 
invalid for another reason, viz,, that the corporation was 
not technically "doing business" in the state, the court 
entered into a discussion, oUter indeed, of the question with 
which we are dealing here. Chief Justice Ruger used the 
following language : — 

It is by no means clear that the mode adopted . . . produces a 
correct result. ... We are quite unable to sanction a principle 
which would subject it [the corporation] to the liability of bemg 
taxed, not only in [the state] where it is located, as it undoubtedly 
would be under the law as laid down by us [m the Horn Silver 
Mining Company Case], on its entire capital stock and gross earn- 
ings ; but also in each state of the Union in which it should own 
telephones on such proportion of its capital stock and gross earn- 
ings as the law-makers of such state saw fit to impose.^ 

It is difficult to see the justice of this conclusion. It happens 

to be true that Massachusetts still follows the incorrect and 

1 People vs. American BeU Telephone Co., 117 N. Y. 242, especially 256. 








\ ' f 


)l \ 


„ 1 


•' ' i 


inequitable plan of taxing the whole capital. But that is no 
excuse for the New York court to interpret the old statute 
in the same way, or to assume that other states wiU also 
follow the precedent which the court itself pronounces " ex- 
tremely hard and unjust." Two wrongs do not make a 
right. In the absence of any federal law regulating the 
subject, the only upright course for each commonwealth to 
pursue is to follow the dictates of interstate comity and the 
sound principles of the science of finance by taxing only so 
much of the corporate capacity as is, economically speaking, 
within its jurisdiction. As we have repeatedly said, the 
taxation of corporate stock is by no means the ideal method. 
But if the New York principle of taxing capital stock and 
gross earnings be nevertheless followed, it is difficult to 
discover any more practicable or more defensible method of 
ascertaining the due proportion of capital stock employed or 
gross profits earned within the state than by considering the 
number of, or royalties from, the telephones used. This is 
analogous to the Connecticut system of proportional mileage 
as applied to railroad companies. In the case of telephone 
companies, however, the number of instruments used is a 
better test than the mileage of the telephone wires ; for the 
capital, as well as the expenses, is far more nearly in direct 
proportion to the number of telephones in use than to the 
amount of the wire employed. 

In the above case the law was declared invalid because the 
tax was assessed on a foreign corporation. Even though 
this foreign corporation held stock in various domestic cor- 
porations, it was not legally doing business in the state; since 
before a foreign corporation can be taxed under the New York 
law it must not only employ a portion of its capital in that 
state, but must also be engaged in doing business there.i In 
the case of a domestic corporation the fact that the capital is 
employed within the state is a sufficient ground for taxation. 
So far as its capital stock is invested in the stock of foreign 

> People ex rel. American Construction and Dredging Co. vs. Wemple, 12» 
N. Y. 558 (1892). 




companies, it is not taxable because it is not employed within 
the state ; but so far as its capital is invested in the bonds of 
foreign corporations taken in return for the sale of patent 
rights, it is taxable.^ In another case it was held that the 
proportion of sales within the state to the total sales of a 
foreign corporation is not a fair test of the capital employed 
within the state. Sales may be made by sample, so that 
the corporation may simply keep an office in the state and 
employ none of its capital there.^ 

In some recent laws, as in Kentucky, the proportion of the 
capital stock which is taxed must bear the same proportion 
to the entire capital stock that the corporate receipts in the 
state bear to the total corporate receipts. This is a simple 
solution of the problem, but falls properly under the head- 
ing of double taxation of receipts, to be discussed below. 

3. Interstate taxation of non-resident bondholders or stock- 
holders. The subject of the taxation of corporate stock or 
bonds is complicated in another way by the question of extra- 
territoriality. The problem is this : Can a corporation, 
even though its capital be employed wholly within the state, 
be taxed on its capital or bonded debt if these are owned in 
part by residents of another state? 

The federal Supreme Court has arrived at some very 
remarkable conclusions. So far as bonds are concerned, 
the above practice has been pronounced unconstitutional. 
In one case it has been held that a state tax on bonds issued 
by a railroad company and secured by a mortgage on a line 
lying partly in another state was void, because the state was 
taxing to that extent "property and interests beyond her 
jurisdiction." 8 A later case went further and decided in 
general terms that a tax on corporate bonds is invalid as to 
non-resident owners, because the debts are not the property 

* People ex rel. Edison Electric Light Co. vs. Campbell, 139 N. Y. 543 

2 People ex rel. The Seth Thomas Clock Co. vs. Wemple, 133 N. Y. 323 

* Railroad Company vs. Jackson, 7 Wall. 262. 

I ' 








I i • 


of the debtor, Le, the corporation, but of the creditors, Le. 
the bondholders. They are the obligations, not the property, 
of the debtors. But the creditors cannot be taxed on their 
property because they are not within the jurisdiction of the 
state. ^ The particular statute in this case was the Pennsyl- 
vania law of 1868, requiring corporations to retain five per 
cent on the interest due on the bonds, payable to non-resi- 
dents. The state courts which had hitherto entertained a 
different opinion were compelled to acquiesce ; and in a 
later case, decided in the same commonwealth, the state tax 
on corporate loans, i.e. on bonded indebtedness, was upheld 
only so far as it applied to the bonds owned by the resi- 
dents,^ being declared to be a tax on the bondholder, not 
on the corporation.^ This, therefore, is the accepted law of 
the land as to bonds. 

Shares of stock, on the other hand, are treated quite differ- 
ently. It has indeed been decided that a state tax on divi- 
dends is unconstitutional as to non-residents if the corporation 
be required to ^thhold the tax from the dividends.* The 
New Jersey courts, moreover, have held that a corporation is 
not liable on that part of its stock owned by non-residents.^ 
The Maryland statute, as we know, is to the same effect. The 
United States courts, however, have uniformly maintained 
that a state tax on capital stock, even though the stock be 
held partly by non-residents, is legitimate on the ground 
that the tax is laid on the corporation as a whole, and not 
on the individual shareholder.® A recent case has even 
decided that a state tax on the shares of stockholders, which 
the company is required to pay irrespective of dividends, is 
not a tax on the shareholders but on the corporation. ^ This 
is held to be true notwithstanding the fact that in another 

1 State Tax on Foreign-held Bonds, 15 Wall. 300. 

> Commonwealth vs. Delaware Division Canal Co., 123 Pa. 694. 

« Bell's Gap R. R. Co. vs. Commonwealth, 134 U. S. 232. 

• Oliver vs. Washington Mills, 11 Allen 268. 

• 26 N. J. 181 ; 3 Zabriskie 506, 517. 

• Delaware Railroad Tax Case, 18 Wall. 208. 
■ New Orleans vs. Houston, 119 U. S. 265. 



case a tax on dividends or interest paid by the corporation 
was held to be a tax on the income of the stockholder or of 
the creditor, and not on the income of the corporation.^ 

The present state of the law, therefore, is that the entire 
capital stock of a corporation may be taxed by any common- 
wealth, but that only so much of the bonds are taxable to 
the corporation as are owned by residents of the state. The 
mere statement of this proposition makes it evident how 
impracticable would be the otherwise admirable system of 
taxing corporations by a separate tax on stock and an 
additional tax on bonds. The Pennsylvania system, which 
at first blush seemed to be an excellent solution of the 
problem, thus appears to be shorn of its chief merits, if 
the present law of the land is sound. The great majority of 
states, the bonds of whose corporations are owned mainly 
outside of the state in large financial centres like New York or 
Boston, would find such a tax sadly inadequate.^ Even in the 

1 United States vs. Railroad Co., 17 Wall. 332. 

2 An investigation by the Pennsylvania Tax Conference disclosed the 
following facts as to certain Pennsylvania railroads : — 

ToTAi. Bond Ibsuxb. Amoitht held in Pa. 












Appbaibid Valvx or 














or Lara nr Pa. 












I ll 



\ '.^i 

fl I 




state of New York, where the comptroller is now clamoring 
for a tax on corporate indebtedness, the proceeds would fall 
far below the actual capacity of the corporations. The deci- 
sions of the Supreme Court prevent double taxation, it is 
true, but they do it so effectually as also to prevent just 
taxation. The situation would be intolerable. 

The same difficulty applies to the taxation of bonds of 
foreign corporations held in the state. A recent case has 
decided that a state cannot impose upon a corporation char- 
tered by another state, when paying in that other state the 
interest due upon bonds held by a resident of the first state, 
the duty of deducting from the interest so paid the amount 
assessed upon the bonds by a tax law of the first state. ^ 

From the economic point of view, these decisions are inde- 
fensible. If the tax on capital stock is a tax on the corpo- 
ration, then the tax on mortgage bonds is equally a tax on 
the corporation. Stock and bonds together represent the 
corporate property, for the value of the stock is diminished 
by the existence of the bonds. The bondholders, viewed 
from the economic standpoint, are no more creditors of the 
corporation than are the stockholders. They are co-proprie- 
tors, just as mortgagor and mortgagee are in economic fact 
co-owners of the land. It is, therefore, impossible to see any 
justification for taxing non-resident stockholders while ex- 
empting non-resident bondholders. The same rule should 
be applied to both classes, for their interests in the pros- 
perity of the corporation are in this respect precisely the 
same. The original Pennsylvania decision which was re- 
versed by the federal Supreme Court rested on an earlier case 
involving much the same question, known as Maltby's Case. 
And with all due deference to the Supreme Court, it must be 
stoutly maintained that to the student of political economy 

Some of the results are very absurd: Railroad no. 4, although having 
$230,000 bonds, paid a tax of % 1.92. Road no. 18, worth about the same 
amount, paid 01^200.00. The last road but one paid no taxes at all. The 
road half of whose mileage was in the state paid nothing at all on its 
$2,900,000 bonds. 

1 Railroad Co. w. Pennsylvania, 153 U. S. 629. 



the original Pennsylvania decision seems sounder than that 
rendered by the federal tribunal. In Maltby's Case the 
court uses the following language : — 

What would the plaintiff's [a non-resident] loan be worth if it 
were not for the franchises conferred upon the corporation by the 
commonwealth [of Pennsylvania], franchises which are main- 
tained and protected by the civil and military power of the com- 
monwealth. ... It is on this ground that the legislature dis- 
criminates between corporation loans and private debts as objects 
of taxation. . . . The, loans and stocks of a railroad company 
resemble each other in many respects. Both are subscribed under 
the authority of a special law, and both are so far capital that they 
are employed for the same general purpose. . . . Although loans 
and stocks are distinguishable for many purposes, yet the legisla- 
ture committed no very great solecism in treating loans as taxable 
property within our jurisdiction. . . . Corporation loans, though 
in one sense mere debts, are, like moneys at interest, taxable as 

This is perfectly sound political economy, although it is 
not now the law of the United States. 

It is remarkable that, in several cases decided since the 
leading case of the state tax on foreign-held bonds, the 
Supreme Court has applied to the relations between the fed- 
eral government and foreign states a principle entirely dif- 
ferent from that which it invoked in the case of the common- 
wealths. It has been held that the national tax imposed 
during the Civil War on the dividends, coupons and profits 
of transportation companies is an excise tax on the business, 
and that it is valid even though the dividends or interest 
are withheld from a foreign stockholder or bondholder.^ 
Justice Field in a dissenting opinion showed the incongruity 
between these decisions and the earlier ones as applied to 
commonwealth laws. He said : — 

1 Maltby vs. Reading and Columbus Railroad Co., 53 Pa. State 140. 

2 Railroad Company vs. Collector, 100 U. S. 695 (1879) ; United States v$. 
Erie Railroad Co., 106 U. S. 327 (1882). 

1 il 







I tl» 

r ► 

If the United States can do this, why may not the state do the 
same thing with reference to the bonds issued by corporations 
created under their laws ? What is sound law for one sovereignty 
ought to be sound law for another.^ 

This protest, however, was in vain, and the legal status of 
the problem continues to be anomalous. The federal gov- 
ernment can impose a tax on the total stock and bonds, or 
total dividends and interest of corporations, irrespective of 
the residence of the holders. The separate commonwealths, 
on the other hand, which are treated like foreign countries 
in the case of corporate stock or dividends, can impose a tax 
on only so much of the bonds or interest as are owned by, 
or due to, residents. This is of course illogical. 

A peculiarly interesting complication arises in those com- 
monwealths where the law of mortgage has been changed 
for tax purposes. One of the chief grounds of the decision 
in the Foreign-held Bond Case was that since the railroad 
lands on whifeh the bonds and mortgages were issued lay in 
Pennsylvania, the non-resident bondholder had no property 
therein. Said Justice Field : — 

The property in no sense belonged to the non-resident bond- 
holder or to the mortgagee of the company. The mortgage 
transferred no title; it created only a lien upon the property. 
Though in form a conveyance, it was both in law and equity a 
mere security for the debt. The mortgagee has no estate in the 

It would be interesting, if this were the proper place, to 
trace the law of mortgage through both the Roman and the 
English law, and to show that in each system the mortgagee 
originally had both possession and property; that in a later 
stage he had no property in the land but retained the posses- 
sion; until finally he had neither property nor possession, 
but simply a lien.* Be that as it may, it is true that Justice 

1 106 U. S. 336. 

3 For the Roman law of Jiduciaj pigntts and hypotheca^ see Hunter, Boman 
Law, pp. 262-276. For the development of the English law, see Digby, An 
Introduction to the Hidtory of the Law of Beal Property, chap, v., § 6 (2). 



Field correctly represented the American law on the subject. 
That the mortgagee has no estate in the land is the Penn- 
sylvania law ;i and similar cases have been decided in 
the same way in other commonwealths. Thus, in an Iowa 
case, a corporation mortgage held by a non-resident was 
declared non-taxable in Iowa because "the mortgagee has 
only a chattel interest. . . . The mortgage is personal prop- 
erty . . . and attaches to the person of the owner."* So 
also under the old constitution of California, a case of inter- 
municipal taxation was decided in the same way. A judg- 
ment of record in one county upon the foreclosure of a 
mortgage situated in that county, the owner of the judg- 
ment being the resident of another county, was held not tax- 
able in the first county because " the thing secured by the 
mortgage is intangible and has no situs distinct and apart 
from the residence of the holder. It pertains to and follows 
the person." ^ 

It will be seen that aU these cases turn upon the point that 
the mortgage is personal property ; but in California and in 
Massachusetts, as we know,* it has been provided that the 
interest of the mortgagee should be considered, for purposes 
of taxation only, as realty. This changes the whole situation 
and entirely undermines the foundation of the decision in 
the Foreign-held Bond Case. If the interest of the non-resi- 
dent bondholder, i.e., the mortgagee, is no longer personalty, 
it does not follow the person of the bondholder, but may be 
taxed by the commonwealth in which the corporation is 
situated. The taxation of non-resident bondholders must 
thus be Assimilated in these states to that of non-resident 
stockholders, and the federal decision will therefore be appli- 
cable to one part, but inapplicable to another part, of the 
United States. It may even happen that the corporate prop- 

1 Rickert vs. Madeira, 45 Pa. State 463. 

2 Davenport vs. The Mississippi and Missouri Railroad Co., 12 Iowa 539. 

» People vs. Eastman, 25 Cal. 603. See also State of Nevada vs. Earl, 1 
Nevada State 397 ; State vs. Ross, 3 Zabriskie 517. 

* Supra^ p. 103. In California, however, this does not apply to railroads 
and other quasi-public corporations. 

. t 








erty covered by the mortgage is situated in several different 
states, so that part of the bonds may be subject to one law, 
part to another. The ensuing complications may be easily 
imagined. It would be far better for the Supreme Court 
to abandon the whole contention and on purely economic 
grounds to reverse its decision. In assessing a tax on capital 
stock or bonded debt, it should be entirely immaterial whether 
or not some of the stockholders or bondholders live with- 
out the state. The residence of the security holder should 
have nothing to do with the taxation of the corporation. 

If the tax is imposed not on the corporation but on the 
shareholders, non-resident stockholders would naturally 
escape, because outside the tax jurisdiction. In some cases, 
however, it is provided that corporations must then pay 
taxes for the non-resident stockholders. ^ 

From one point of view there is indeed some force in the 
contention that the residence of the security holder should 
be considered.- It may often occur that the stock and bonds 
of a corporation lying within one state may be owned by 
residents of another state. If the whole fortune of these 
individuals is invested in such securities, the second state 
would get no revenue at all if it exempted securities of taxed 
corporations. Yet the individuals certainly owe some duty 
to the state of their residence ; their economic allegiance, 
80 to speak, is partly due to the state where they live. 
On the other hand it is equally clear that the corporation 
owes a decided duty to the state where it is situated and 
where its earnings are secured. How is this conflict to be 
avoided ? 

The most desirable solution of the difficulty, as we have 
already intimated, would seem to be the division of the tax 
between the state of the corporation and that of the security 
holder. Each party possesses taxable faculty or ability 
within the borders of the respective states — the corporation 
where it earns its money, the security holder where he resides 

1 Md. Rev. Code, part viii., art. xi., § 87 ; N. J. Rev., 1877, p. 1199 (as to 
banks); Ore. Gen. Laws, 1872, chap. 57, art. 1, § 6. 




and enjoys the benefit of government. For each state to 
levy the entire tax would be double taxation ; hence, if one 
party is taxed, the other should be exempt. In order to 
obviate the complete loss of revenue to the one state, and 
to satisfy the conflicting claims, the principle of economic 
allegiance must be invoked, and each state must be per- 
mitted to tax that portion of the economic faculty that 
properly falls within this category. This of course must be 
arranged by interstate agreement. The plan has not yet 
been tried in any American state, because no serious attempt 
has yet been made to grapple with the difficulties ; yet no 
final escape from the complexities of double taxation can 
be attained until some such method is adopted. But even 
though the proceeds ought to be so divided, the tax ought to 
be levied as a whole, entirely irrespective of the residence of 
the security holder. This part of the problem may be 
solved according to the system proposed by the Tax Con- 
ference of Pennsylvania and practised in some other states, 
like Illinois, Indiana and Connecticut; namely, by assessing 
the corporation on a valuation equal to the market value 
of the whole capital stock plus the entire bonded debt, with 
a provision that only so much of the capital shall be assessed 
as is economically within the state. 




4. Interstate taxation of receipts or income. This phase 
of interstate double taxation presents far less difficulty. In 
regard to gross receipts the measure of faculty is very simple, 
VIZ., the gross receipts from business done within the state. 
In the case of insurance companies this is fast becoming 
the general rule in this country. When the returns do 
not show the precise amount of the gross receipts, the laws 
often provide, especially in the case of transportation com- 
panies, that the proportion is to be ascertained by the ratio 
of mileage within the state to the total mileage ; and this 
method has generally been upheld. ^ The question has some- 

1 18 WaU. 208, 231. Cf. 92 U. S. 608 ; 125 U. S. 530 ; 45 Md. 384 ; 141 
U. S. 18 ; 55 Fed. Rep. 206. 







' < 


I ■ 

gU" I 

times arisen whether the word mileage is to be interpreted 
to mean miles of track or miles of line. The former is, 
however, the correct economic basis. In Wisconsin mileage 
has even been held to include side tracks.^ The mileage 
principle has also been applied to street railway companies, 
in the assessment of lines within and without the city- 

The same arrangement is really applicable, as we have seen, 
to all corporations except transportation companies. The 
reason for the exception is that a tax on business transacted 
wholly within the state would result in a practical exemption 
of the larger part of railway earnings — that derived from, 
or in any way connected with, interstate transportation. 
As to other corporations, however, the gross earnings tax 
can be easily arranged so as to obviate double taxation. 

If the gross earnings tax be discarded, as we have sug- 
gested, and if a tax on net receipts or income be imposed, 
how does the matter stand then ? Strictly speaking, only 
so much of the income as is earned within the state should 
be assessed ; but since it is exceedingly difficult to ap- 
portion the expenses of a large corporation among all its 
branches in different commonwealths, it would seem prefer- 
able to adopt some approximate standard by which the net 
receipts could be measured. As the most practicable and 
easily ascertained measure is gross receipts, the most ap- 
proved method of taxing corporate income would be to 
assess that proportion of the total net income which the 
gross receipts within the state bear to the entire gross 
receipts. Such a system would present no difficulties, and 
would preclude all chance of double taxation of this kind. 

We have thus far considered only the question of com- 
plications arising from international or interstate taxation. 
Of minor consequence, but still of sufficient importance to 
deserve mention, are the problems of intermunicipal double 
taxation. These are of minor consequence because, in the 
United States at least, there are but very few instances of 

1 64 Wis. 130. 2 74 Md. 406. 

municipal or county taxes on the receipts, income or loans 
of corporations which do any business without the limits 
of the local divisions. On the other hand, we find local taxes 
on the total property and on the capital stock of corporations 
which have more than a purely local significance. The rules 
should be the same as those applied above to cases of interstate 
taxation. But so long as very few of the commonwealths 
accept these principles, it will scarcely surprise us to find that 
the local divisions almost completely ignore them. Thus in 
New York City, the home of many huge corporations of 
national importance, it is the common practice to assess for 
local purposes the entire capital stock of the corporation, 
irrespective of the question whether a portion of its property 
may not be situated, or whether its stock may not be em- 
ployed or owned, outside of the confines of the city. This 
is manifestly a crude practice, whose injustice can be readily 
removed by pursuing the plan here laid down — i.e. by 
taxing corporations for local purposes only on their real 
estate. Ultimately, perhaps, if the local needs become more 
pressing, a proportionate share of the proceeds of the com- 
monwealth corporation taxes may be distributed among the 
local divisions. In this way no possible complications could 
arise from intermunicipal double taxation. 

What can we learn from Europe on this whole subject 
of interstate or intermunicipal double taxation? The only 
countries in which such interstate complications can arise 
are the federal states of Germany, Austria-Hxmgary and 
Switzerland. In two of these an attempt has been made 
to regulate the matter. 

In Switzerland the constitution of 1874 imposes on the 
federal legislature the obligation of preventing double taxa- 
tion, without attempting, however, to analyze or to point 
out the various forms of double taxation. ^ While several 

1 Art. 46: *'DieBundesgesetzgebung wird . . . gegen Doppelbesteuerang 
die erforderlichen Bestimmungen treffen." A translation of the Swiss con- 
stitution has been published as no. 18 of the OU South Leaflets, Boston, 1890. 











1 '' 


decisions of the Swiss courts have definitely settled some 
of the simpler problems of duplicate taxation, the more 
subtle questions that interest us under this fourth head- 
ing have not yet been adjudicated to any extent. Beyond 
the principle that corporations, like natural persons, are 
taxable on their income and on their property by the 
canton where their chief office or establishment is situated, 
or where their business is conducted, no successful attempt 
has as yet been made by the federal legislature or courts 
to solve the problems here discussed. ^ A few of the cantons, 
however, have recently embodied in statutes the principle that 
only so much of the capital or income as is employed or re- 
ceived within the commonwealth should be taxable. Such, for 
instance, is now the law in Vaud, Ticino and Baselstadt.2 In 
Bern the same principle is applied to intermunicipal taxation.* 
In Uri the taxable property and profits are calculated in 
proportion to relative mileage.* In Neuchatel foreign cor- 

1 Ztircher, Kritische Darstellung der bundesrechtlichen Praxis betreffend 
das Verbot der Doppelbesteuerung (Basel, 1882), pp. 88-93 ; Schreiber [same 
title], p. 269. Cf. also, in general, Speiser, Das Verbot der Doppelbesteue- 
rung (Basel, 1886). 

2 In Vaud, all individuals as well as private corporations or societies, 
** sont soumis k Pimpot pour tout le capital mobilier affect^ au service de 
leur activity dans le canton." Loi d'impot sur la fortune mobilifere et sur la 
fortune immobiliSre, du 21 aout, 1886, chap, iii., art. 12. Printed in Schanz, 
Die Steuern der Schweiz, v., p. 387 ; cf. also, iv., p. 128. —In Ticino, *Me 
persone, le ditte commerciali, le societi o gli enti morali in genere, che, non 
avendo il loro domicilio o la loro sede nel Cantone, vi tegono stabilimento, 
succursale, agenzia, rappresentanza, o vi esercitano un' industria, oppure vi 
poseggono beni o rendite . . . sono tenuti al pagamento dell' imposta, in 
ragione della sostanza e della rendita che hanno nel Cantone." Legge sull* 
imposta cantonale (April 28, 1890), art. 14. In Schanz, v., p. 462. — In 
Baselstadt, " bei Gesellschaften welche neben der Niederiassung im Kanton 
auch eine solche ausserhalb des Kantons besitzen, tritt eine dem Umfange 
der auswSrtigen Niederiassung entsprechende Minderang des Steuerbetrags 
ein." Gesetz betreffend die Besteuerung der anonymen Erwerbsgesell- 
schaften, vom 14 Oktober, 1889, § 4. In Schanz, v., p. 50. 

8 *' Bei Untemehmungen, die in verschiedenen Gemeinden ihr Gewerbe 
ausuben, ist die Steuer nach Verhaltniss der Ausdehnung des GeschSfts an 
diese Gemeinden zu entrichten." Gesetz fiber das Steuerwesen in den 
Gemeinden, vom 2 Sept., 1867, § 7. In Schanz, v., p. 88. 

* Uri, Steuergesetz vom 10 Mai, 1880, art. 13. In Schanz, v., p. 376. 



porations are taxable only for the profits earned within 
the commonwealth. 1 In Appenzell it is provided that 
corporations should pay the income tax in the place 
where the business is carried on, but in such a manner 
as to avoid double taxation.^ The recent law of Ticino 
is most interesting for the further reason that it also 
imposes a tax on all corporate loans, but allows the corpora- 
tion to deduct the tax only from the interest on the bonds 
owned within the canton.^ Foreign-held bonds thus esca^De 
taxation in the hands of the individual holder except by 
the state of the owner's residence. It will be observed that 
the custom in Ticino is thus the exact reverse of the prac- 
tice in the United States. 

In Germany, the conditions are much the same. In 1870, 
an imperial law was enacted which forbade in express 
terms double taxation arising from interstate complications. 
This law provided that individuals should be taxed by 
the state of their domicile, and that real estate should be 
taxable by the state of its location. The only clause affect- 
ing corporations prescribed that the occupation as well as 
the income from the business could be taxed only by the state 
where the business was carried on.* The commission which 
drafted the law, however, evaded the main question by assert- 
ing that the exact proportion of the corporate business or in- 
come taxed by any one state must depend on " the particular 

1 "Les soci6t6s anonymes . . . sont soumises au meme impot pour les 
ressources que leur procurent les affaires faites dans le pays." Loi sur 
I'impot direct du 18 octobre, 1878, art 6, § 3. In Schanz, v., p. 219. 

2 '* Immerhin unter Vermeidung von Doppelbesteuerung." Vollziehungs- 
verordnung fiber die Ausftihrung von Art. 16 der Verfassung betreffend das 
Steuerwesen (April 5, 1880), art. 6. In Schanz, v., p. 26. 

' The corporations " sono tenuti al pagamento dell' imposta . . . sulP 
import© complessivo delle obbligazioni al portatore da loro emesse." But 
the law contains this further provision: " Non saranno colpiti dall' imposta 
i capitali [including the bonds] di cui . . . ove il contribuente dimostri che 
ci6 costituirebbe una doppia imposta." . . . Arts. 15 and 3, § 3 of the law of 
1890. In Schanz, v., pp. 460, 462 ; cf. iv., p. 282. 

* Reichsgesetz wegen Beseitigung der Doppelbesteuerung ; vom 13 Mai, 
1870, § 3. Reprinted in Meitzen, Die Vorschriften iiber die Klassen- und 
klassifizierte Einkommensteuer in Preussen, no. 6. 


1 1..!! 












form of the actual conditions."^ This has settled nothing, 
and the matter remains, as before, a subject for the separate 
states to regulate. 

Several of the German commonwealths have now adjusted 
the difficulties in very much the same way that has been 
adopted or proposed in various American states. Thus the 
Baden law provided that only so much of the corporate 
income shall be assessed as is proportional to the amount 
of capital employed within the state.^ So the earlier Prus- 
sian law provided that the taxable net income of railroads 
which lie partly in other states should be estimated by the 
proportion of gross receipts within the state, and that this 
again should be calculated according to mileage.^ The 
Prussian local tax law of 1885 measures the proportion of 
corporate income or net profits due to each tax district by 
the share of gross receipts in the case of banks and insurance 
companies, and by the share of expenses for salaries and 
wages in the case of transportation companies.* The income- 
tax law of 1891 states that only that part of the net receipts 
actually earned in Prussia shall be taxable.^ 

The tendency therefore seems to be the same in all coun- 
tries. Whether the tax be imposed on property or on income, 
the law should be applicable to both domestic and foreign 
corporations; and while no deduction should be made for 
non-resident holders of stock or bonds, only so much of the 
property or income should be assessed as is employed or re- 
ceived within the state. Since an exact standard is unattain- 

1 " Dass die Entscheidung immer von der besonderen Gestaltung der 
thatsachlichen Verhfiltnisse abhangen werde." Cf. Clauss, **Das Reichs- 
gesetz wegen Beseitigung der Doppelbesteuening," in Schanz's Finanz- 
Archiv, v., pp. 138-197, especially p. 179. 

2 Badisches Einkommensteuergesetz von 20 Juni, 1884, art. 5, lit. B. In 
FinanZ'Archiv, iii., p. 308. 

8 Law of March 16, 1867, § 9. For the judicial decisions and rescripts on 
this point, see Clauss, op. cit., p. 181. 

* Communalsteuemothgesetz von 27 Juli, 1886, § 7. Printed in Finanz- 
ArchiVf iii., pp. 174-193, together with an explanatory article by Secretary 

* Einkommensteuergesetz von 24 Juni, 1891, § 16. 





able, it is advisable to use the approximate test of relative 
mileage in the case of transportation companies and of rela- 
tive gross receipts in the case of other corporations. 

V. Taxation of the Corporation and of the Security Holder, 

We come finally to the fifth and most important division 
in the subject of duplicate taxation — the taxation of the 
corporation and of the shareholder or bondholder. The 
question is : If we tax the corporation, shall we also tax the 
individual who owns the stock or bonds of the corporation ? 
Is this double taxation? Is it unjust? 

Let us first discuss the actual practice both here and abroad. 
In the United States the legal conditions are absolutely lack- 
ing in uniformity. In some states the tax on the corporation 
is declared to be a tax on the shares, which are accordingly 
exempted from assessment. Thus in California, the statute 
declares that " shares of stock possess no intrinsic value over 
and above the actual value of the property of the corporation 
for which they stand," and that to tax both corporation and 
shareholder is double taxation. ^ In Arizona, we find exactly 
similar language used.^ In most of the other common- 
wealths, also, shares of stock in the hands of individuals are 
exempt when the corporation itself is taxed, although the 
reason of the rule is not always expressly stated as in the 
cases just cited. ^ 

On the other hand, the statutes in North Carolina, 
Wyoming and Iowa (except for manufacturing corporations) 
and the judicial decisions in Illinois, Iowa, Louisiana and 
Maine are to the contrary effect.* This was formerly true 

1 Cal. Code, § 3608, new sec. March 7, 1881; cf. Burke vs. Badlam, 57 
Cal. 594 ; 21 Fed. Rep. 539 ; 22 Fed. Rep. 602. 

2 Ariz. Code, § 2633. 

* For details, see the chapter in Pepper and Lewis, A System of the Law 
of Private Corporations^ mentioned above on i . 137. 

* Porter vs. Railroad Co., 76 111. 561 ; Danville Banking Co. vs. Parks, 88 
111. 170 ; Cook vs. Burlington, 59 la. 251 ; New Orleans vs. Canal Co., 32 La. 
Ann. 61 ; Cumberland Marine Railroad vs. Portland, 37 Me. 444. 




I' II 




• - I 

;» ' 





V . 

also in Indiana, Pennsylvania and Tennessee.^ In some 
of these cases it has been held that *' the tangible property 
of a corporation and the shares of stock are separate and 
distinct kinds of property under different ownership ; the 
first being the property of the corporation and the last the 
property of the individual stockholder." Taxation of both 
corporation and shares of stock is hence pronounced neither 
duplicate nor unjust taxation, even though the shares of 
stock have no value save that which they derive from the 
corporate property and franchise.^ In other cases again, it 
has been held that even though the taxes amount to double 
taxation, they are not unconstitutional. This, however, is 
true only in those states which admit double taxation, as 
Pennsylvania formerly did, even though it be confessedly 

Other commonwealths, again, take a less logical middle 
ground. In the case of certain corporations they do not 
permit taxation of both shares and corporation ; in the case 
of other corporations they do not object to this simultaneous 
taxation. In the case of national banks, as we know, the 
taxation of the corporation itself is made impossible by fed- 
eral law. Most of the states, therefore, tax only the indi- 
vidual shares, although they collect the tax through the 
corporation. 8 In many cases this system has been extended 
to other banks besides national banks. A few common- 
wealths (Delaware, Georgia, Kansas and North Carolina) 
pursue this method with regard to all corporate shares in 
general, and collect the tax from the corporation.* In 

1 16 Ind. 150 ; 49 Pa. State 526 ; 66 Pa. State 77 ; 47 Pa. State 106. But it 
has been recently held in Pennsylvania that double taxation will not be sup- 
ported except by express enactment. 166 Pa. State 488 ; 161 Pa. State 266 
and 276 ; 139 Pa. State 612. 

2 So also in Switzerland this simultaneous taxation has been upheld on 
the strictly juristic ground that the corporation and the shareholder are dis- 
tinct persons. See Speiser, Das Verbot der Doppelbesteuerung^ and Roguin, 
La Begle de Droit (Lausanne, 1889), 141 and passim. 

» See supra, pp. 148t 149. 

* Del. Laws, 13, chap. 393 ; Ga. Code, sec. 815 ; Kan. Comp. Laws, chap. 
107, sec. 6 ; N. C. Machinery Act of March 11, 1889, sec. A 6. 



a few others, including Iowa, Kentucky and Vermont, the 
prohibition of simultaneous taxation of both shareholder 
and corporation applies only to definite classes of corpora- 
tions.i In Ohio it is true only of domestic corporations. 
In Massachusetts domestic corporations are taxed and the 
individual shareholders are exempt as regards all dues except 
those for school-district and parish purposes.^ 

The decisions of the United States Supreme Court are 
somewhat conflicting. The earlier cases seem to uphold 
simultaneous taxation of corporation and of shareholder. In 
a late case, however, the court asserts that double taxation is 
never to be presumed; and that, although the common- 
wealths have an undoubted right to levy such taxes, in the 
absence of a special statutory provision the presumption is 
against such an imposition.^ On this point, accordingly, we 
find an absolute contradiction of theory. 

In a cognate matter there is a still greater diversity of 
practice. Some commonwealths, as we have just seen, 
tax the stockholders on the full value of their shares, 
irrespective of the question whether the corporation has 
been taxed or not. In other states, however, only a por- 
tion of the value of the shares is taxable. Thus in 
Louisiana, Minnesota and Nebraska, in the assessment of 
shares of stock to the holders, a proportionate part of the 
value of the real and personal corporate property taxed 
within the state is deducted from each share.* In New 
Hampshire and Tennessee, a proportionate part of the real 

1 In Iowa the prohibition applies only to manufacturing companies. Acts 
18th Gen. Assembly, chap. 57, §§ 1, 2 ; in Kentucky to turnpike, gas, tele- 
graph, telephone, express, street-railway and toll-bridge companies, Revenue 
Law of 1886, chap. 1223, art. iv., § 8 ; in Vermont to railroads, Rev. Laws, 

sec. 270. 

2 Mass. Pub. Stat., chap, xi., sec. 4. 

« Tennessee vs. Whitworth, 117 U. S. 136, 137 ; also. New Orleans w. 
Houston, 119 U. S. 265. For the earlier cases, see Van Allen xis. Assessors, 
3 Wall. 673 ; The Delaware Railroad Tax Case, 18 Wall. 230 ; Farrington 
rs. Tennessee, 95 U. S. 686 ; Sturges vs. Carter, 114 U. S. 511. 

4 La. Acta of 1888, no. 85, sec. 27 ; Minn. Gen. Stat., chap. xi. ; Neb. Act 
of March 1,1879, sec. 32. 


; I 



I 'J 



estate actually taxed is deducted from each share.^ In Rhode 
Island, a proportionate part of the real estate and machinery 
is deducted. 2 In Maine, a proportionate part of the ma- 
chinery, goods manufactured or unmanufactured, and real 
estate locally taxable is deducted.^ Finally, in New York, 
the statute (which applies, however, only to state and na- 
tional banks) provides for the deduction of the assessed 
value of the real estate.* In all these cases only the prop- 
erty actually taxable within the state is deducted. In Ver- 
mont, on the other hand, in the case of manufacturing 
companies the value of the corporate realty and personalty, 
and in the case of all other corporations the value of the 
realty, is deducted whether the property be located or taxa- 
ble within or without the commonwealth.^ 

A somewhat analogous question is that of the taxation of 
the shares of foreign corporations in the hands of individual 
residents. All those states which, as we have seen, declare 
it to be justifiable to tax both corporation and shareholder, 
of course do not hesitate to tax the shares held by resi- 
dents, even though the foreign corporation itself be taxed. 
There is here, therefore, no discrimination between domestic 
and foreign corporations. The other states which declare 
the simultaneous taxation of corporation and shareholder 
to be duplicate taxation, may be divided into two classes. 
Some of them exempt the shares held by residents in foreign 
corporations, but only when the foreign coi-porations them- 
selves are actually taxed by the state of their residence. This 
is the rule in New York, in almost all of New England and in a 
few other states, like California, Louisiana and New Jersey.^ 

1 N. H. Gen. Stat., chaps. 63-65 ; Tenn. Laws, 1868-69, chap. 9, sec. 9. 

« R. I. Pub. Stat., chap. 43, sec. 12. 

s Me. Rev. Stat., tit. i., sec. 14, § 3. 

* N. Y. Laws of 1866, chap. 761 ; Laws of 1882, chap. 409, § 312. Cf. Peo- 
ple vs. Commissioners of Taxes, 69 N. Y. 91. 

» Vt. Rev. Laws, tit. 9, chap. 22, sec. 288. Cf. on this point, Moore, •* Cor- 
I)orate Taxation," in American Law Beview for 1884, p. 771. Moore's 
statements are not entirely accurate. 

« Hoyt V8. Commissioners, 23 N. Y. 224 (1861) ; N. H. Gen. Laws 1878, 
chap. 53, sec. 6 ; Vt. Rev. Stat., tit. ix., chap. 12, sec. 270 ; R. I. Pub. Stat., 



Some states, however, like Massachusetts, make a distinc- 
tion between foreign and domestic corporations, exempting 
the shareholders of domestic corporations (or taxing them only 
through a simple tax on the corporation itself), but assessing 
the shareholders of foreign corporations on their shares. 
This practice has given rise to considerable controversy ; ^ 
but from the standpoint of justice in taxation it can be de- 
fended only to a very limited extent. According to the 
principle of relative economic interests, the shareholder of 
a foreign corporation is indeed under a certain obligation 
to support the state of his residence. The proper way to 
satisfy the conflictmg claims is, however, to have the foreign 
state, which taxes the corporation, divide the tax according 
to some agreement with the state where the stockholder 
resides. To tax the shareholder when the foreign state 
already taxes the corporation seems inadmissible ; while en- 
tirely to exempt the shareholder is unfair to the state of his 
residence. Some modus vivendi ought to be arranged; but so 
long as it does not exist, the New York rule should be followed. 
Such is the situation in regard to shares of stock. The 
same question can, of course, arise in reference to mortgage 
bonds. As regards the simultaneous taxation of corporate 
property and the individual bondholder, the disagreement 
is less profound only because corporate loans are, as we 
know, rarely taxed. In the one commonwealth, Connecticut, 
where certain corporations pay what has been pronounced 
a property tax on the value of their stocks and bonds, 
it has been held not to be double taxation to assess the 
individual bondholder as well as the corporation.* Yet 

chap 42, sec. 10 ; N. J. Revis. 1877, p. 115, sec. 64. Cf. Smith vs. Ram- 
sey, 25 Vroom, 646 (1893); Lockwood vs. Weston, 61 Ct. 211 (1891); City 
of San Francisco vs. Mackey, 22 Fed. Rep. 602. 

1 This has been the law since 1836. But up to 1866 taxes paid on Massa- 
chusetts real estate and machmery by the foreign corporation were deducted 
from the tax on the shareholder. Mass. Rev. of 1836, chap. 7, sees. 2, 4 ; 
Dwight vs. Boston, 12 Allen 316. Cf Crocker, The Injustice and Inexpe- 
diency of Double Taxation, 1892 ; R. H. Dana, Double Taxation Unjust 
and Inexpedient, 1892. « Bridgeport vs. Bishop, 33 Conn. 187. 





i • 




Pennsylvania and Maryland come to the opposite conclu- 
sion, so far as the bonds in these commonwealths are taxable 
only to the corporation and not to the individual bond- 
holder ;i for in these states neither stockholder nor bond- 
holder is liable. The federal Supreme Court virtually 
accepts the same principle in deciding that a tax on the 
bonds is a tax on the bondholder,* the corporation being 
used merely as a convenient means of collecting the tax. 
It may be confidently asserted, therefore, that so soon as the 
taxation of corporate loans becomes as general as is now the 
taxation of corporate stock, we shall be confronted by pre- 
cisely the same difficulties. 

If we turn to Europe, we shall find a still greater 
diversity of practice. Of the European countries, Switzer- 
land is the only one in which some of the cantons still tax 
corporate property or capital stock ; and in Switzerland the 
condition is just as chaotic as with us.^ Thus one set of 
cantons (Glarus, Grisons, Baselstadt, Aargau and Ticino) 
formerly taxed only the shareholder.* The intercantonal 
complications, however, soon assumed important proportions; 
for it frequently occurred that the great majority of the 
shareholders resided in a different canton from the home 
of the corporation, to the manifest detriment of the pub- 
lic revenue in the latter. Owing to this fact, the above 
system has now been abandoned by all the cantons except 

A second set of cantons, which tax the corporate property 
and income, deduct the shares, dividends or interest in the 

1 Pa. law of June 30, 1885, § 4 ; Md. Rev. Code, art xi., sec. 97. Before 
the corporation-tax law of 1880, the same principle applied to all corporations 
in New York. 

2 State Tax on Foreign-held Bonds, 15 Wall. 300. 

» Cf. in general, Schanz, Dit Steuern der Schioeiz^ i., pp. 90-99; and 
Ztircher, Kritische Darstellung betr^end das Verbot der Doppelbesteuerung, 
pp. 36-41. 

* This was true in Grisons from 1871 to 1881 ; in Baselstadt up to 1879 ; 
in Aargau to 1885 ; in Ticino to 1890. See the respective laws in Schanz, 
op. cU., iii., p. 247 ; ii., p. 40 ; v., p. 4, § 20 ; iv., p. 281. For Glarus, see 
ibid,, v., p. 175. 



hands of the security holders of domestic corporations 
from this taxable property or income. Such is the law 
in Schaffhausen, Bern, Vaud, Aargau and Uri,i and is 
the practice in Baselstadt, Schwyz and Zug.^ The security 
holders of foreign corporations are, however, not exempted 
from taxation. Grisons, moreover, has the curious provision 
that while corporations are taxed directly, only the share- 
holders of domestic corporations are exempt, the bondholders 
of both domestic and foreign corporations being taxable 
equally with the corporation. ^ In some of the above cantons, 
as in Uri, Bern and Aargau, the security holders are exempt 
only from commonwealth taxes, but are liable for local 
burdens.* It is the same system, it will be observed, as in 

A third set of cantons do not shrink from double taxation, 
but tax both corporation and shareholder. Such is the law 
in Baselstadt and Neuchatel.^ On this point the decisions 
of the Federal Council are contradictory. ^ Finally, a fourth 

1 Schaffhausen, Steuergesetz vom 29 Sept. 1879, arts. 9 and 10, in Schanz, 
v., p. 259 ; ii., p. 169 ; Bern, Vollziehungsordnung, vom 22 Mftrz, 1878, § 3, 
in Schanz, v., p. 83 ; Vaud, loi d'impot sur la fortune mobilifere du 21 aofit, 
1862, art. 6, in Zurcher, op. cit., p. 38, cf. Schanz, iv., p. 158 (true only to 1886) ; 
Aargau, Grossrltliche Verordnung fiber den Bezug der direkten Staats- und 
Gemeindesteuer, vom 26 November, 1885, § 7, m Schanz, v., p. 15; Uri, 
Steuergesetz vom 10 Mai, 1886, art. 5, in Schanz, v., p. 375. 

* For these cantons, see the judicial decisions in Ziircher, op. cit.^ p. 38. 

* Graubunden, Steuergesetz vom 28 August, 1881, § 16 ; in Schanz, v., 
p. 192. 

* See the respective provisions in Schanz, v., p. 375, art. 5 ; 88, § 7; 15, § 7; 
and 19, § 18. 

fi Bern, Gesetz betreffend die direkten Steuern, vom 31 Mai, 1880, §§1,8; 
and Gesetz betreffend die Besteuerung der anonymen Erwerbsgesellschaften, 
vom 14 Oct., 1889, § 1 ; in Schanz, v., pp. 41, 43, 49 ; NeuchStel, Loi sur 
Tunpot direct du 18 Oct., 1878, art. 5 and art. 6, § 3 ; in Schanz, v., pp. 218, 
219. Schanz, i., p. 95, also includes Zug in this class, but erroneously, as 
appears from the official decision quoted in Zurcher, op. cit.^ p. 38. 

6 See the several cases in Schreiber, Verbot der Doppelbesteuerung, pp. 
199-202. He opposes double taxation. On the other hand, see Meili, 
** Rechtsgutachten fiber die Besteuerung der Aktiengesellschaften," in the 
Zeitschrijt fur schweizerische Gesetzgebung, v., p. 489. See also Zfircher, 
op. cU., p. 40. 





I « 



set — and this seems the growing tendency in Switzer- 
land seek to divide the tax between corporation and 

shareholder. Thus Geneva taxes the corporation on its 
realty and the shareholder on his shares ; but does not 
permit the shareholder to make a proportionate reduction 
for the corporate realty already taxed, as is the case in 
New York, New Hampshire and Tennessee.^ Appenzell 
taxes the shareholders on the market value of their shares, 
but the corporations only on their reserve funds.^ In Ziirich, 
the shareholders are taxed on their shares ; the corporations 
on their reserve fund and income in excess of five per cent of 
the capital. The income below five per cent is not taxed 
because it is supposed to be hit by the tax on the share- 
holders. For purposes of local taxation, however, the share- 
holders are assessed on their shares, but the corporations 
pay only on their realty and on a proportionate part of their 

reserve funds.^- 

The recent " draft of a federal law on double taxation " 
sought to divide the tax between corporation and shareholder 
in a new way. The stockholder was to be assessed by the place 
of his domicile on the market value of his shares up to the 
amount actually paid or on the dividends up to five per cent ; 
while the corporation was to pay only on the value of the 
capital or dividends above this figure.* Although this particu- 
lar draft failed of adoption because of the jealousy of the indi- 
vidual cantons at the supposed infringement of their state 
rights, the principle has nevertheless been accepted by a single 
commonwealth, — Vaud. In this canton all shares which 

1 Geneve, Loi gfen^rale sur les contributions publiques, du 9 novembre, 
1887, arts. 300, 324 ; in Schanz, v., pp. 151, 165. 

2 Vollziehungsverordnung fiber die Ausf tihrung von Art. 16 der Verf assung 
betreffend das Steuerwesen (April 6, 1880), arts. 5, 6. Schanz, v., p. 26. 

« Gesetz betreffend die Vermogens-, Einkommen- und Aktivbfirgersteuer 
vom 24 April, 1870, §§ 2, 4 ; Anleitung betr. das bei der Selbsttaxation . . . 
zu beobachtende Verfahren, § 6 ; Gesetz betreffend das Gemeindewesen, 
§ 137, d, e. Schanz, v., pp. 423, 424, 431, 439 ; ii., p. 435. Cf. Zurcher, op, 

cit., p. 39. 

* Bundesgesetzentwurf vom 6 Marz, 1885. In Schanz, i., p. 96. 



Stand above par and all bonds which pay more than four per 
cent interest are assessable to the individual owners at their 
par value. The corporations are assessed only on the surplus 
above the capital stock, U. the reserve and sinking funds 
and other sums earned during the year.i Such a clumsy 
method is not likely to be adopted in this country. On the 
other hand, in St. Gallen the stockholder is taxed on his 
shares, the corporation on its income in excess of four per 
cent interest on the capital.^ We see, then, that Switzerland 
has no settled practice. 

In the other chief European countries neither general prop- 
erty nor capital stock is taxed. The whole system is that 
of the taxation of incomes. The same questions arise as to 
the taxation of corporate profits and of shareholders' or bond- 
holders' income. 

In England, the income tax payable on annual profits or 
gains according to schedule D of the income tax is ad- 
vanced by the corporation, and is deducted by it from the 
dividends or interest due the security holders, who are 
then to that extent exempt from the income tax.8 In 
Austria the facts are similar to those in England.* In 
Italy, the law requires the income tax to be paid by the 
corporation, but does not interfere with the adjustment of 
the tax between the company and the shareholders. Nothing 

1 "Les actions et parts de soci6t§8 qui ont leur sifege en Suisse et dont le 
cours a la bourse est sup6rieur a leur valeur nominale ou qui rapportent un 
intfergt supgrieur au 4 per cent de cette valeur, sont comptfees dans la fortune 
mobiliSre du porteur ou des cr6anciers pour leur valeur nominale seulement. 

L'avoir net (reserves et amortissements compris) des 80Ci6t6s ... est 
cJmptfe dans la fortune mobili^re de ces soci6t6s pour tout ce qui excfede le 
capital social." Loi d'impot sur la fortune mobUifere. «(c., du 21 aofit, 
1886, art. 11. Schanz, v., p. 387 ; iv., p. 158. 

2 Geseta fiber die Emkommensteuer, sowie fiber die Besteuerung der 
anonymen Gesellschaften (1863), art. 5; Verordnung fiber Besteuerung der 
anpnymen Gesellschaften vom 28 Jan., 1867, arts. 4, 11. Schanz, v., pp. 

309, 311. 

« Ellis, A Guide to the Income Tax Acts, pp. 78-112. 

4 Wagner, '*Direkte Steuem," § 103, in Schonberg, Handbuch der poll- 
tischen Oekonomie. iii., p. 307. Wagner's discussion of these points is 
fragmentary and inconclusive. 




14 I • 


'. f 




f , 





would prevent the corporation from deducting the tax from 
the dividends ; but in fact, it is the custom for the corpora- 
tion to charge the tax to expense account, with the same 
result for the shareholder. The latter is not assessable on 
his dividends because the law expressly forbids double tax- 
ation of this kind.i As regards bondholders the companies 
are required to pay the tax on coupons, with a right to recoup 
from the bondholders.^ The companies generally do not 
deduct anything from the coupons, but, as with dividends, 
charge the tax to expense account. In this case it would 
seem as if the stockholders were liable for the tax, since, 
strictly speaking, it would have to come ultimately out of 
the stockholders' dividends, and not out of the bondholders' 
interest, which is legally fixed. In actual practice, how- 
ever, this distinction is not observed. The bondholders, 
moreover, are not assessable if the corporation has paid the 
tax. In France, the tax %ur le revenu des valeurs mohilieres^ 
so far as it applies to the dividends or interest of corporate 
securities, may be primarily collected from the company and 
then deducted by it from the sums due the security holders, 
as in England ; or the tax may be assumed directly by the 
companies,^ as in Italy. 

In Germany, every possible plan has been tried, with- 
out reaching any definite or uniform conclusions. The 
matter is, moreover, further complicated by the fact that 
corporations like individuals must pay a business tax 
(^Gewerbesteuer}, somewhat akin to licenses or occupation 

1 *' Ne saranno soltanti eccettuati [in the taxable income] i redditi che per 
disposizione della presente legge siano gik una volta assoggettati all' imposta 
in essa stabiliU." Legge per P imposta sui redditi di ricchezza mobile, art. 
8, §2. 

• " . . . Le society anonime dichiareranno non solo i redditi propri, ma 
eziando . . . gli interessi dei debiti da loro contratti e delle obbligazioni da 
loro emesse, e pagheranno direttamente 1' imposta relativa anche a questi 
ultimi redditi, rivalendosene sui loro assegnatori e creditori mediante rite- 
nuta." Ibid., art. 15. 

« Tanqu6rey, Trarte . . . de V Impot sur le Bevenu des Valeurs Mobilieres, 
pp. 143-150 ; Vignes, Traite des Impots en France^ i., pp. 405-409 ; Kauff- 
mann, Die Finanzen Frankreicfis, pp. 288, 291. 



taxes in the Southern states of the American Union. 
In a number of German states (Oldenburg, Brunswick, 
Gotha, Schaumburg-Lippe, Waldeck and Liibeck) the cor- 
porations pay no income tax, but the shareholders and 
bondholders are taxed. ^ In other states, like Saxe- Wei- 
mar, Lippe-Detmold, Bremen and Hesse, the corpora- 
tions are assessed, but the shareholders and bondholders 
are exempt.^ Even in these commonwealths, however, the 
definitions of corporate net income do not tally. In most 
of the remaining states, like Prussia, Saxony, Baden, Ba- 
varia, Wiirtemberg, Mecklenburg, Anhalt and the other 
minor commonwealths, both corporation and security holder 
are taxed — the corporation on its income or business, the 
individual on his income from the corporate security.* In 
one case (Baden) the same income is taxed four times — 
that is, the corporation pays a business tax ( GewerbesteiLer) 

1 Cf. the details in Antoni, " Die Steuersubjecte im Zusammenhalte mit 
der Durchf iihrung der Allgemeinheit der Besteuerung nach den in Deutsch- 
land geltenden Staatssteuergesetzen," in Finam-Archiv, v., pp. 916-1038, 
especially 1010. 

2 Sachsen-Weimar, Gesetz liber die allgemeine Einkommensteuer, von 19 
Mfirz, 1869 [with amendments of 1874, 1877 and 1880], §§ 48 and 4. Printed 
in Finanz-Archiv, ii., p. 932.— Lippe-Detmold, Gesetz die Klassen-und 
klassifizierte Einkommensteuer betrefEend, von 1868 [with amendments of 
1882 and 1885], §§ 1, 7. — Bremen, Einkommensteuergesetz von 17 Dez., 
1874, § 5. — Hessen, Gesetz von 1884, die Einftihrung der Einkommensteuer 
betrefEend, arts. 4, 19. In Finanz-Archiv, ii., pp. 383-434. For Hesse in 
particular, see Schanz, "Diedirekten Steuem Hessens und deren neueste 
Reform," Finanz-ArchiVj ii., pp. 235-629. Also Conrad's Jahrbucher, liL, 
p. 40. 

« Sachsen, Einkommensteuergesetz von 1878, § 4. — Bayem, Einkommen- 
steuergesetz von 1881, art. 1, § 15. In Seisser, Die Gesetze iiber die direkten 
Steuem im Kgr. Bayern, i., 158. — Wiirtemberg, Gesetz von 1872, art. 1, § 3. 
In Sammlung wurttembergischer Steuergesetze (1883). — Mecklenburg, revi- 
diertes Contributionsedict von 1874, §§ 13, 45. — Baden, (Jesetz von 1884, 
die Einftihrung einer allgemeinen Einkommensteuer betrefEend, art. 5. In 
Finanz-Archiv, ii, pp. 361-394. Cf. Philippsberg, Gesetz ilber die direkten 
Steuem in Baden (1888). — Anhalt, Gesetze von 1886, die Einftihrung einer 
Einkommensteuer . . . betrefEend, §§ 2, 4. Cf. Schanz, "Die Steuem im 
Herzogthum Anhalt, ihre Entwickelung und neueste Reform," Finanz- 
Archiv, iv., pp. 961-1070, especially 1016. For Prussia, see Einkommen- 
steuergesetz von 1891, §§ 12 b, 14. 







and an income tax, while the individual shareholder or bond- 
holder pays not only an income tax but also a tax on the 
interest of his capital invested in the bonds or stock (Kapit- 
alrentensteuer),^ In the original draft of the bill to reform 
the Prussian law, this same quadruple taxation was pro- 
posed ; 2 but its injustice was so manifest that the project 
failed. It was also proposed in Hesse, but without success. 
Baden, therefore, is the only state in the world which can 
pride itself upon assessing the same object four times. 

We see, thus, that in Europe there is no settled practice at 
all, although the tendency seems to be to tax the corpora- 
tion and to exempt the individual on his income from cor- 
porate investments. Is this the correct policy ? Is it true 
that in taxing the corporation, whether on property or on 
income, we are taxing the individual holder of the shares or 

This brings us to the pith of the question. What is the 
incidence of the corporation tax ? Where does the burden 
really fall ? This question has never yet received adequate 

VI. Incidence of the Tax* 

It is generally assumed that a tax on a corporation is 
a tax on the shareholder or bondholder. But as has already 
been pointed out,* a distinction must be drawn between the 
original holder and the recent purchaser of corporate securi- 
ties. Under certain circumstances the tax is not borne by 
the purchaser of new corporate securities, but falls entirely 
on the original holder of the old securities issued before the 
tax was imposed. If a corporation is taxed on its income, 

1 Finam-Archiv, ii., p. 320. Of. Lewald, "Die direkten Steuem in 
Baden," in Finam-Archiv, iii., p. 360. 

2 Einkommensteuergesetzentwurf von 1883. 

» The nearest approach to a discussion of this question is to be found in 
Helferich, " Ueber die Einftihrung einer Kapitaisteuer in Baden," in T(i- 
binger Zeitsehrift fur die gesammte Staatswissenschaft, 1846, pp. 291-324, 
especially 316 et seq. ♦ Supra, p. 106. 



and if no similar tax is levied on other corporations or on 
other securities, the stock will fall in value and the new pur- 
chaser who buys at the reduced price really buys free of 
tax. The amount of the tax is thus discounted in the depre- 
ciation of the security. With the lapse of time and the 
fluctuations in the market the original holders all disappear. 
Hence at any given time an exclusive income tax levied only 
on the corporation and not on the shareholder does not affect 
any one except the few original holders who bought before 
the imposition of the tax. It is only a question of a few 
decades until this class of original holders disappears 


As to bondholders, the argument is precisely the same if 
the corporation is empowered to deduct the tax from the 
interest. The lower rate of interest is discounted in the 
depreciation of the bond, so that the new purchaser loses 
nothing. But in those cases where, as we have seen, the tax 
is borne by the corporation and not deducted from the inter- 
est,i the bondholder does not suffer, except in so far as 
it somewhat lessens the security of the mortgage. 

Of course this is more or less true of all new taxes under 
certain conditions. By virtue of what is called the capi- 
talization of taxation a new tax affects the original owner 
of the taxable article more than the new purchaser. In 
the case of direct taxes the original holder is injured while 
the future purchaser discounts the tax in the depreciation 
of the article. In the case of indirect taxes the reverse is 
true, for the effect of the tax is to increase the price. The 
lucky owner who holds the commodity before the imposition 
of the tax reaps the benefit of the rise in price. The point 
which is usually overlooked, however, is the question whether 

1 During the Civil War, when a federal tax was imposed on the coupons 
and dividends of certain corporations, many corporations declared these 
*' free of tax," and refused to withhold the amount from the sums due to the 
bondholders and stockholders. They simply assumed the tax and charged it 
to expense account, asserting that while the law authorized, it did not direct, 
them to withhold the tax. See Internal Revenue Becord, vol. i. (1865), p. 
163. —The practice was thus the same as in Italy to-day. 

M 11 






the new tax is general or partial. If the direct tax applies 
to all subjects in the class and to aU classes, then the new 
purchaser is taxed equally with the original owner. For 
if the tax is general there will be no depreciation in value. 
It is only when the tax is partial, assessing some articles in 
the class more than others, that it will virtually be capi- 
talized, and that a decrease in the value of the overtaxed 
article will ensue. 

If we apply this principle to the corporation tax, we 
reach the following results : If the corporation tax simply 
forms a part of a general scheme of income taxation, as 
in England or in Italy, the shareholder must indeed be 
exempted. Since the tax affects the interest on all invest- 
ments, not simply on corporate securities, the investor, whose 
interest was cut down, will not find any non-taxable securi- 
ties of equal desirability from which he can obtain the 
original rate of interest. In such a case, therefore, the 
tax on the corporation is a tax on the investor. To tax 
• both corporation and individuals on their income would 
really be double taxation. On the other hand, if the corpo- 
ration tax is partial — z.g. if only corporate and not other 
securities are taxed, as in France, or if only a few classes 
of corporations are taxed — then the taxation of the 
corporation is not sufficient to reach the purchaser. He 
will practically escape, because the freedom of investing 
in non-taxable securities will enable him to discount the 
tax in the price he pays. To tax both corporation and 
shareholder in such a case is not unjust or double taxa- 
tion. To tax the corporation alone would in reality exempt 
the shareholder who purchased after the tax was imposed. 
An additional tax on the shareholder would, thus, not be 
double taxation. 

Thus far we have been discussing the incidence of the 
corporation tax in a scheme of income taxation. How does 
the matter stand in the case of a property tax ? 

The principle is the same. Let us assume that in addi- 
tion to the corporation tax a general property tax is actuaUy 





levied on all individuals. The corporation would then pay 
the first tax, and the individuals would pay the second tax 
upon corporate shares and bonds. This would indeed be 
duplicate taxation, but only on the assumption that the 
corporation tax is imposed on all corporations in general, 
and that the property tax is actually assessed on all kinds 
of property. In such a case it would be unjust to tax both 
corporation and shareholders. This is the assumption made 
by most of the American commonwealths, which, as we 
have seen, generally exempt the shares when the corporate 
property or franchise is taxed. 

The assumption, however, is not absolutely correct. In 
the first place, only special classes of corporations are usually 
taxed. Secondly, the general property tax we know to be 
general only in name, for by far the larger part of personal 
property or of investments in the hands of individuals es- 
capes taxation. Under these conditions the matter is entirely 
different. The corporation tax will now be discounted 
in the lower market value of the shares, because, other 
things being equal, the value of new investments will vary 
in proportion to the net profits to be derived therefrom. 
Although the corporate tax reduces the dividends, the 
reduced dividends on the reduced value will yield to new 
investors as large a percentage as did the larger divi- 
dends on a property of greater value — greater because 
untaxed. Thus where there is only a partial tax on 
personal property the corporation tax puts the new pur- 
chaser of shares in the same position as if he owned 
non-taxable property, i.e. it practically exempts all the 
shareholders except the original owners. In the case of 
bondholders where the corporation tax is deducted from 
the interest, this is equally true. When the corporation 
tax is assumed by the corporation and not deducted from 
the interest, — the almost universal rule in the United 
States — the bondholders are not reached at all, except in 
the very indirect way that they may be exposed to an 
ultimate diminution in the security of their lien. The tax 







I M i 




as such does not strike them ; their property, consisting of 
corporate bonds, goes scot-free. A property tax or franchise 
tax on the corporation, under the given conditions, is not a 
tax on the individual holder of corporate securities. 

The practical conclusion applicable to the United States 
to-day is as follows : 

If the corporation tax is to be utilized as a means of reach- 
ing the faculty of the security holder, rather than of the 
fictitious person known as the corporation, it is necessary to 
generalize the tax — to levy a general tax on corporations, as 
a few states are now beginning to do. Furthermore, the 
corporation tax must be regarded simply as a part of a larger 
system of taxation, the constituent elements of which must 
endeavor to reach the other sources of the taxpayer's ability. 
The corporation tax, in other words, must be supplemented 
by other taxes, both state and local, in order that these taxes 
combined may stand in some proportion to the revenue of 
the individual. Then, but only then, will it always be 
double taxation to assess the corporation as well as the 
security holder. So far as there is a decided tendency to 
generalize the corporation tax, the trend of American legis- 
lation, in seeking to avoid double taxation, is in the right 

VII. Local Taxation, 

Up to this point we have discussed chiefly the state taxa- 
tion of corporations. But the lesser governmental divisions 
also have their claims to urge, especially in modern times 
when local needs outweigh so heavily those of the states. 
There are no less than five different methods of taxing cor- 
porations for local purposes in the United States. These are 
as follows : 

1. A local general property tax. 

2. A local corporate franchise tax in addition to the 
general property tax. 

3. A local tax on real estate. 



4. No local tax at all. 

6. A distribution of the state tax on corporations to local 

districts. , 

The first plan, that of the local property tax, is stiU usual, 
even in some of the commonwealths that have abandoned 
the general property tax on corporations for state purposes. 
Corporate property is in some cases measured by the capi- 
tal stock. In New York, for example, while banks, in- 
surance and telegraph companies are taxed according to 
special laws, on all other domestic corporations the tax 
is levied at the usual rate of the local property tax on 
the actual value of the capital stock, together with the 
surplus profits or reserve funds exceeding ten per cent of 
the capital, after deducting the assessed value of the real 
estate and of the shares of stock in other taxable corpora- 
tions.i Foreign corporations, however, are taxable only on 
the sums actually invested in the state. 

The second method, that of a corporate franchise tax m 
addition to the local property tax, is found in Kentucky, 
where the tax on the franchises of certain corporations may 
be levied also by the local divisions. Somewhat analogous 
to this are the local licenses which in many of the Southern 
states are imposed on corporations as weU as on individuals 
in addition to the state licenses. 

The third method, that of a local tax on real estate only, 
is becoming more and more common, especially in the com- 
monwealths which impose a separate state tax on certain 
kinds of corporations, like transportation and insurance com- 
panies. It is likewise the custom with banks, which pay to 
local real estate tax, and which also advance the tax on 
shares assessed to the shareholders. 

The fourth plan, the exemption from local taxation, is 
found in a few states which impose a franchise tax on 
certain classes of corporations. The only state which has 

1 Laws of 1857, chap. 466, vol. u., p. i. For a statement of the actual 
decisions under this law, see J. T. Davies, A Compilation of,.. Cases 
relating to the System of Taxation in New York. 



I.. I I 








a general corporation tax law in lieu of local taxation is 
Pennsylvania. Even there certain classes, like purely manu- 
facturing companies, which are excepted from the opera- 
tion of the general corporation tax, are subject to local 
taxation on their real estate. Furthermore, the real 
estate of railroad and other transportation and trans- 
mission companies, not necessary to the exercise of their 
franchise, may be taxed by the local bodies. Some cities 
are also permitted by their charters to tax the real estate 
of certain corporations, and the courts have ruled that 
the general corporation-tax law does not deprive these 
municipalities of the right to tax their real estate.^ 
Finally, the tax on banks and insurance companies, being 
in some cases practically a tax on incomes, does not exempt 
their real estate entirely from taxation. Even in Pennsyl- 
vania, therefore, there is a slight local taxation of corporate 
real estate. 

The fifth and" last method of local taxation, the distribu- 
tion of the state corporation tax to local bodies, is found in 
the case of railroads in several states like California, Maine, 
Mississippi, West Virginia and in the case of corporations 
in general in Massachusetts. But in some of these states 
the local bodies levy additional taxes, as in Massachusetts 
on real estate and machinery. 

Of all these systems the third is clearly the best. All 
corporations with the possible exception of those enjoying 
special municipal franchises should be made to pay a 
local tax on their real estate; first, because it is mainly the 
iftalty which comes into direct relations with the purely 
local functions; and secondly, because the attempt to tax 
personalty would immediately lead again to the uncer- 
tainty and confusion from which it has been the policy of 
all recent reforms to extricate us. 

The New York system, therefore, is doubly unwise: first, 
because it imposes a state tax on corporate real estate ; 
and secondly, because it further imposes a local tax on 
1 Pennsylvania R. R. Co. w. Pittsburgh, 104 Pa. State 522 (1883)* , 



the total corporate property. The Minnesota or the Connect- 
icut system, as applied to railroads, is unwise because it 
imposes no local tax at all. The system as formerly prac- 
tised in Washington was unwise because it imposed only a 
single state tax which was in part redistributed to the local 
divisions. All these methods err because they fail to analyze 
the deeper principles that imderlie corporate taxation. 

The plan of levying a general state tax and distributing a 
part of the proceeds to the counties or municipalities contains 
a fruitful idea. It is already in vogue in an incomplete 
way in a few commonwealths, as we have seen. But it is 
susceptible of great expansion and may be of considerable 
value in solving the vexed question of local taxation. As 
applied to corporations, however, such a plan of redistribu- 
tion is entirely premature. Until the proceeds of the 
state corporation tax are sufficient to enable the com- 
monwealth to dispense entirely with the state tax on 
real property, nothing of the kind should be contemplated. 
Whatever claims the local divisions may justly have on 
the overfilled treasury of the commonwealth must be set 
aside until the taxation of real estate is left exclusively to 
them. The abolition of the state tax 'on real estate is per- 
haps the most necessary reform in the American system ; 
to this all other changes must be subordinated. If the 
commonwealth treasury should be supplied through other 
sources, such as a state inheritance tax or a state income tax 
or a state tax on other elements, it would be possible not 
only to abandon the state taxation of real estate, but also to 
relinquish to the local bodies a portion of the state corpora- 
tion taxes. But until that time arrives, a distribution of the 
corporation taxes among the local divisions will be inadvis- 
able. The logical plan for the immediate future is to tax 
corporations on their net receipts, or on a valuation equal to 
the stock and bonds, for state purposes ; and to tax them on 
their real property for local purposes. This, and this alone, 
satisfies the demands of scientific method and of practical 








I ( 





VIII. Conclunon, 

From the preceding survey it appears that the United 
States are slowly advancing to a more rational and harmoni- 
ous system. The tendency of legislation and of judicial 
interpretation in the most progressive states is toward the 
following plan, which, although not yet completely realized 
in all its features in any one state, is in accord with sound 
economic principles : 

yr 1. Corporations should be taxed separately and on dif- 
ferent principles from individuals. 

^ 2. Corporations should be taxed locally on their real 
estate only. 

3. Corporations should be taxed for state purposes on 
their earnings, or on their capital and loans. 

4. Only so much of total earnings or capital should 
be taxed as is actually received or employed within the 
state. In the case of transportation companies, a convenient 
and fairly accurate test is mileage. 

5. Where capital and loans are taxed, the residence of 
the shareholder or bondholder should be immaterial. 

6. There should be no distinction between domestic and 
foreign corporations. Each should be taxed for its business 
done or capital employed within the state. 

7. If corporations are taxed on their property, property 
beyond the state should be exempt. 

8. If corporations are taxed on their capital stock, they 
should not be taxed again on their property. 

9. Where the corporate stock or property is taxed, the 
shareholder should be exempt. If corporate loans are 
taxed, the bondholder should be exempt. 

10. Where the corporation and the shareholder or bond- 
holder are residents of different states, the tax should be 
divided between the states by interstate agreements. 

^^ 11. An additional tax should be levied on corporations 
which have through natural, legal or economic forces become 
monopolistic enterprises. 



[In addition to the tax-commission reports cited at the end of chapter xiii.] 

1. Abbott, W. G. Objections to the Taxation of Savings Banks. New 

York, 1880. 

2. Adams, C. F., Jr., Williams, W. B., and Oberly, J. H. (A com- 

mittee appointed at a convention of state railroad commissioners 
to examine into and report the methods of taxation as respects 
railroads and railroad securities now in use in the various states 
of the Union, as well as in foreign countries; and further, to 
report a plan for an equitable and uniform system of such taxa- 
tion.) Taxation of Railroads and Railroad Securities. New York, 
8. Ames, John H. The Taxation of Real Property and Corporations. 
Des Moines, 1878. 

4. Atkinson, Edward. Argument for a Change in the Law in regard 

to Taxing Foreign Corporations. Boston, 1887. 

5. Coleman, James H. Letters on Corporations and Taxation. New 

York, 1878. 

6. Foster, Roger. The Taxation of the Elevated Railroads in the 

City of New York. New York, 1883. 

7. Hillhouse, Thomas J. Taxation of Banks by the State of New 

York. New York, 1880. 

8. Hopkins, S. M. Speech on the Subject of Taxing Bank Stock. 

Albany, 1822. 

9. MooRE, Edward C, Jr. Corporate Taxation. Li 18 American 

Law Review, 1884. 

10. Olmstead, M. G. Argument on Behalf of Certain Corporate Inter- 

ests before the Ways and Means Committee [of Pennsylvania]. 
Harrisburg, 1895. 

11. Patterson, C. Stuart. Speech on the Taxation of Railroads 

before the Committee of Ways and Means [of Fennsylvania]. 
Harrisburg, 1895. 

12. Short, Edward L. Careless Legislation on Corporate Taxation. 

29 Albany Law Journal. 

13. Spear, T. J. Bank Taxation. 21 Albany Law Journal. 

14. Stevens, B. F. The Taxation of Life Lisurance Companies. Bos- 

ton, 1875. 

15. Stevens, W. B. The Taxation of State Banks. Boston, 1865. 

16. Williams, Chauncy P. The National Banks and State Taxation. 

New York, 1887. 

17. Wright, John A. Memorandum of a System of Taxation, sub- 

mitted to the Committee for Revision of the Revenue Laws of 
Pennsylvania. Harrisburg, 1890. 




The State and National Banks. The Question of Taxation. Al- 
bany, 1864. 

19. Report of the Committee of Bank Officers of the City of New York 

in relation to Bank Taxation. New York, 1875. 

20. [Seven] Exports of the American Bankers' Association upon Bank 

Taxation. New York, 1875-1889. 




Among the unsettled questions of the science of finance 
few are more troublesome than that of classifying the differ- 
ent kinds of public income. Classification is indeed not of 
supreme importance, for matter is always more essential than 
form. But correct classification is helpful in many ways. 
It requires logical criticism and rigorous analysis, and thus 
becomes a test of mental vigor ; it conduces to accurate 
definition and prevents looseness of expression and con- 
fusion of thought ; it may have important practical results 
in deciding questions of fact and in assigning definite values 
to doubtful categories ; it points out contrasts and resem- 
blances, and by eliminating or combining what is common, 
often suggests a clearer conception of the subject-matter. 
Correct classification is, in truth, an essential condition of 
all scientific progress. 

It has frequently been remarked that we must distinguish 
between historical and actual classifications. For example, 
the whole class of lucrative prerogatives — the Regalia of the 
Teutonic kingdoms and of early fiscal science — were for- 
merly separated from the other categories of public reve- 
nues because of their commanding importance in mediaeval 
countries and of their supposed points of difference ; whereas 
well-nigh every recent writer of importance, even in Germany, 
has confessed that all such revenues are capable of being classi- 
fied under one of the other modern categories. So, again, 
while the revenue from the incidents of feudal tenure played 
a great role in the classification of Blackstone and other early 
writers, the need of showing the composite nature of such 





revenues has been obviated by the disappearance of the ten- 
ures themselves. Finally, special assessments are a growth of 
comparatively recent times. Only a short time ago, a classi- 
fication of public revenues might safely have ignored their 
existence; now a logical classification of actual revenues 
would be incomplete without them. What concerns us 
here is a classification applicable to modern conditions. 

I. The Primary CHassijication. 

From the standpoint of the individual all contributions to 
government are either gratuitous, contractual or compulsory. 
Every governmental revenue must fall within one of these 
three great classes. Individuals may make the government 
a free gift, they may agree or contract to pay, or they may be 
compelled to pay. The first method of securing revenue 
was at one time important, but its influence to-day is slight. 
The second and third methods correspond to the widely 
adopted classification suggested by Adam Smith,i who tells 
us that : 

The revenue which must defray ... the necessary expenses of 
government may be drawn either, first, from some fund which 
peculiarly belongs to the sovereign or commonwealth, and which 
is independent of the revenue of the people, or, secondly, from 
the revenue of the people. 

That is, the government may in the first place act like a 
private individual, possessing lands or other revenue-yielding 
property, and engaging in mercantile, financial or industrial 
pursuits. As Petty, the author of the first systematic English 
treatise on taxation, put it in the seventeenth century, the 
state is in some places the common cashier, the common usurer, 
the common insurer or the common beggar.^ This is what the 
French call in the widest sense the revenue from the private 
and industrial domain of the state, and what the Germans 

* Wealth of Nations J book v., chap. ii. 

* WiUiam Petty, A Treatise of Taxes and Contributions, London, 1667, 
pp. 60, 61. 


term the private-economic income. A better term, perhaps, is 
contractual income ; since the government here puts itself in 
the position of a private person making a contract with 
another person. Such payments all rest on an agreement 
between the two contracting parties, in sharp contrast to the 
payments which the government demands by virtue of the 
sovereign powers delegated to it. 

We often hear of the distinction between voluntary 
and compulsory contributions, meaning by the former the 
free gifts of the citizens. This distinction, however, is not 
perfectly accurate; for contractual contributions are also vol- 
untary, without being gifts. In the case of a contract, the 
government agrees to do some particular thing in return for 
a payment, leasing land, for instance, in return for rent; in 
the case of the free gift, the government does not under- 
take nor does the donor expect any specific action in return. 
Yet both payments are voluntary. We must therefore 
distinguish not merely between voluntary and compulsory 
contributions, but between gratuitous, contractual and com- 
pulsory contributions. 

Thus far almost all writers are agreed. The difficulty 
arises when we desire to classify the various kinds of com- 
pulsory revenues and to distinguish between some of these 
subdivisions and the different kinds of contractual rev- 
enues. All possible combinations have been made, especially 
by recent German writers. Let us confine ourselves in this 
chapter to the pith of the controversy, namely, to the sub- 
division of the compulsory contributions and their rela- 
tion to some of the contractual revenues, as, for instance, 
the charges made for the services of governmental enter- 
prises, like the post-office, the telegraph and the like. 

In taking the property of individuals the sovereignty of ^ 
the modern state manifests itself in different ways. The 
government may exercise in turn the power of eminent 
domain, the penal power, the police power or the taxing 
power. " 

The power of eminent domain confers on the govern- 



" f 

ment the right of taking at its discretion, and to an indefinite 
extent, private property for particular uses. With the con- 
stitutional and moral limitations upon this power we have 
not here to deal, chiefly because the power is for the 
most part not a source of net revenue. The fact that in 
all free governments private property cannot be taken 
under this power except for public use, and even then not 
without just compensation, would in itself show that no 
net income to the state is contemplated. Yet such revenue 
may accrue incidentally ; for the benefits accruing to the 
government through the expropriation may conceivably be 
greater than the damage inflicted on the private individual. 
Revenue through expropriation is thus the first class of 
compulsory income. 

The second sovereign power of fiscal importance is the 
penal power, or right of inflicting fines and penalties, 
known technically as the power of sanction. This might 
be declared a part of the police, or regulative, power of the 
state, since every government regulation must carry with 
it the power of enforcement. But on account of the de- 
cidedly problematic fiscal importance of the police power, 
it seems better to separate them. The power to adjudge 
fines and penalties, however, while often quite impor- 
tant as a source of revenue, belongs rather to penology 
and administration than to the science of finance ; for 
the private property is here taken, not in accordance with 
the needs of the state or with any principles of equality or 
uniformity or benefits or compensation, but solely as a pun- 
ishment inflicted on the individual. The only limit to its 
fiscal significance in free countries is the vague provision, 
as in the constitution of the United States, that excessive 
fines shall not be imposed or cruel and unusual punish- 
ments inflicted. Fines and penalties thus form by them- 
selves a class of compulsory revenues levied according to 
definite but non-fiscal principles. It is obviously wrong to 
class them with fees, as do some writers, or to ignore them 
entirely, as do others. 


The third sovereign power of the state is the police 
power, or the power of regulation. This has played a great 
role in American jurisprudence. Yet it may be confidently 
stated that from the standpoint of the science of finance the 
distinction drawn between the police power and the taxing 
power is to a great extent a fiction, referable to certain 
difficulties in American constitutional law and to a lack of 
economic analysis on the part of the judges. Let us study 
this point more in detail. 

II. The Police Tower verms the Taxing Power. 

The commonly accepted distinction between these powers 
is that the former is for regulation and the latter for revenue. 
One argument in support of this view is that advanced by 
authors like Mr. David A. Wells, who contend that a so-called 
tax which looks to anjrthing besides the securing of revenue is 
not a tax, but an unconstitutional exercise of the taxing power. 
But even adherents to the distinction between the police power 
and the taxing power, like Judge Cooley, confess "that, in 
the apportionment of taxes, other considerations than those 
which regard the production of a revenue are admissible, 
and that the right of any sovereignty to look beyond the im- 
mediate purpose to the general effect cannot be disputed." ^ 
The position of Mr. Wells is the exact opposite of that of 
Professor Wagner, who includes in the very definition of a 
tax the " socio-political " element or the duty of regulating 
and correcting the distribution and use of private property.^ 
The one writer would refuse the name " tax " to an imposi- 
tion looking to anything else than mere revenue : the other 
ought logically to withhold the name from an imposition not 
looking to anything else than mere revenue. These positions 
are mutually exclusive and equally extreme. 

On the other hand, the distinction of Judge Cooley is 
almost quite as untenable. Cases where the primary pur- 

1 Cooley, Taxation, 2(i edition, p. 687. 

« Wagner, Finanzioissenschaft, U. (2d edition, 1890), p. 210. 




pose is regulation, he thinks, are referable to the police 
power ; cases where the primary purpose is revenue are ref- 
erable to the taxing power. Mr. Cooley himself confesses 
that import duties with incidental protection are taxes. But 
suppose, as has often occurred, that they are protective 
duties with incidental revenue. Are they any the less taxes 
on that account ? How about the tax on bachelors, which 
was imposed for the express purpose of diminishing celibacy ? 
How about the ten per cent tax on state bank notes, im- 
posed avowedly to destroy the state bank issues? How 
about the American tax on oleomargarine, confessedly of a 
regulative nature ? How about taxes on spirituous liquors 
in the shape of liquor licenses, to regulate and diminish the 
liquor traffic ? How about the many indirect taxes enacted 
in consequence of sumptuary laws? How about certain 
inheritance taxes, whose imposition is demanded on the ex- 
press ground that they will limit fortunes ? How about the 
single tax, whose only raison d'Stre is the attempt to change 
the existing distribution of wealth ? Shall we call the Indian 
duty on opium a tax, and refuse the name to the American 
internal revenue charge, because India looks primarily to 
revenue, and the United States to regulation? Shall we 
call the French impdt des patentes a tax, and deny the name 
to the analogous license or privilege taxes in some of the 
Southern commonwealths, because in the latter case the 
object is sometimes distinctively regulative ? In fact, if this 
is to be our line of cleavage, we must reconstruct the science 
of finance and remove from the class of taxes whole catego- 
ries of impositions to which no one has ever thought of 
denying the character or name of tax. 

The confusion in the American law is at once compli- 
mentary and uncomplimentary to the judiciary. It is com- 
plimentary in the sense that the judges, when brought face 
to face with the conflict between constitutional limitations 
and the demands of social evolution (or what is known in 
legal parlance as public policy), have sought to remain true 
to their function as the final interpreters of social progress. 


This they have been able to do, however, only through legal 
fictions and divergent decisions. Any one who has studied 
the American law of taxation as a whole must have become 
painfully conscious of the hopeless contradictions among the 
laws of the several states on many important points. This 
condition is due in great measure to the fact that the consti- 
tution or laws of one state by implication forbid what the con- 
stitution or laws of another state expressly permit. In order 
to take an actual case, which is perhaps in line with public 
policy, out of the range of the legal inhibition, the courts of 
the first state are forced to adopt an interpretation wholly 
unnecessary in the second. Thus the continuity of social 
development is preserved, even at the sacrifice of legal con- 
sistency or uniformity. For instance, in New York street- 
car licenses are held to fall under the taxing power, while 
in Pennsylvania they are put under the police power, sim- 
ply because, under the particular conditions, it seemed to 
be a matter of equity, in the one case to uphold, and in the 
other to object to such a charge.^ The payment in the two 
instances was the same, both in amount and in principle ; 
but the attempt to make the same laws conform to a public 
policy which differs in the different states has brought about 
a contradiction. So, too, the whole system of high license 
or liquor taxes is in some states brought under the taxing 
power ; but in others, because of certain constitutional diffi- 
culties, it is put under the police power. ^ To this extent 
the police power has been a legal fiction to enable the courts 
to uphold what could not well be brought under the taxing 
power ; although in another leading case ^ the liquor tax was 
upheld under the taxing power because there was a constitu- 
tional obstacle to its being put under the licensing or police 
power. The police power is of great and growing legal im- 
portance in the United States, largely because of the peculiar 

^ Cf, 2d Avenue Railroad Cases, 32 N. Y. 261, with Railroad Company w. 
Philadelphia, 58 Pa. 119. What was held "reasonable" in one case was 
declared "unreasonable " in the other. 

2 Burch m. Savannah, 42 Ga. 596. Cf. 60 Texas, 86. 

» Youngblood m. Sexton, 32 Mich. 406. 



V > 


" > 


principles of American governmental relations, whereby 
local bodies are deemed to have only those powers expressly 
delegated to them, in contradistinction to the European 
method according to which local bodies possess, in certain 
respects, all powers not expressly withheld from them.^ 
Many of our cities and towns have no taxing power ; and 
even when they have the power, it is strictly construed. 
The courts, therefore, have been compelled to uphold much 
under the police power that under other and more favorable 
conditions they would and could have upheld under the tax- 
ing power. 

On the other hand, there is an element which is not quite 
so complimentary to the judges. The courts have fre- 
quently confused taxes in the narrower sense with the 
exercise of the taxing power in the wider sense. As we 
shall see, there are various forms in which the taxing power 
may manifest itself: taxes in the narrower sense are only 
one form. Special assessments for instance, have been almost 
universally upheld as an exercise of the taxing power, while 
sharply distinguished from taxes in the narrower sense. Yet 
in a leading case sidewalk assessments, which as a matter of 
principle do not differ at all from other special assess- 
ments upheld under the taxing power, have been declared 
police regulations.^ The court has here simply confused 
taxes with the taxing power. It is, moreover, impossible to 
see any difference between the various cases of sewer and 
levee assessments quoted by Mr. Cooley as an exercise of 
the police power and the cases of sewer and levee assess- 
ments quoted by him in another chapter as falling under the 
taxing power. 8 The whole distinction, in fact, rests upon a 
confusion. So, again, while both taxes and fees are an 

1 Goodnow, " Powers of Municipalities respecting Public Works," Publi- 
cations of the American Economic Association^ ii., pp. 72-79. Professor 
Goodnow terms these respectively the systems of legislative and of admin- 
istrative control. 

2 Godard, Petitioner, 16 Pick. 604, 609, quoted by Cooley, Taxation^ p. 

» Cooley, Taxation^ pp. 588-591, compared with pp. 616-620. 



exercise of the taxing power, because it has frequently been 
deemed necessary to uphold license fees by distinguishing 
them from taxes, many of the courts have declared license 
fees to be an exercise not of the taxing power but of the 
police power, thus confusing taxes with the taxing power- 
There is, as we shall see, a decided difference between a 
license fee and a tax ; but it is not the one stated by the 
courts. It is this groping after the real distinction between 
fees and taxes, to be explained in a moment, which has 
led judges, not trained in economics, to draw the line 
between payments under the police power and those under the 
taxing power. The distinction between fees and taxes is 
not synonymous with the distinction between the police and 
the taxing power ; for there are many classes of fees, like 
court fees, fees for legal documents and school fees, which 
cannot possibly be put under the police power. 

While, then, it may be expedient from the legal point of 
view to distinguish between the police power and the taxing 
power, ruling that the one is for regulation and the other 
for revenue, and while the constitutional importance of the 
police power, especially in the United States, is in many 
respects considerable, the distinction from the economic and 
fiscal standpoint is, nevertheless, wholly unnecessary. A tax 
is no less a tax because its purpose is regulation or destruc- 
tion ; and a fee or payment for regulation brings in just as 
much revenue as a precisely identical fee imposed primarily 
for revenue. From the standpoint of finance the test is not 
whether the payment is for regulation, but, as we shall see 
later, whether it is primarily for special benefit or primarily 
for common benefit ; that is, it is a distinction not between 
police power and taxing power, but between fees and taxes. 
In other words, payments that are legally put under the 
police power ought scientifically to be classed under the 
taxing power. 







) ■ 


III. Fee%. 

We come finally to what is from the fiscal standpoint the 
chief sovereign power of the state — the power of taxation. 
Expropriation is not fiscally important, the significance of 
fines and penalties does not lie in the financial domain, and 
the police power, as we have just seen, is of no consequence 
from the standpoint of revenue ; but the taxing power is of 
an entirely different nature. 

The taxing power may manifest itself in three different 
forms, known respectively as special assessments, fees and 
taxes. These three forms are all species of taxation in the 
wider sense, so far as they differ on the one hand from 
contractual revenue or 5'wa8i-private income, and on the other 
hand from the remaining divisions of compulsory revenue, 
like expropriation and fines. What is common to all three 
is that they are compulsory contributions levied for the 
support of government or to defray the expenses incurred 
for public purposes. That is the essence of the taxmg power. 
But, although they are all forms of taxation in this wider 
sense, the differences between fees and special assessments 
on the one hand, and taxes in the narrower sense on the other, 
are so marked that they must be put into separate cate- 
gories. Let us study their characteristics, taking up first 
those payments, like fees, tolls, costs and charges, which 
may be summed up under the general head of fees (the Ger- 
man GehUhrefL, the French taxes, the Italian ta%%e). 

The distinction between fees and taxes, although sometimes 
ascribed to Rau, is really much older. Adam Smith already 
speaks of certain expenses " which are laid out for the bene- 
fit of the whole society." "It is reasonable, therefore," he 
adds, " that they should be defrayed by the general contri- 
bution of the whole society, all the different members con- 
tributing as nearly as possible in proportion to their respective 
abilities." These, as he afterward explains, are taxes. On 
the other hand, he speaks of certain outlays, as for justice, 
for "persons who give occasion to this expense," and "who 



are most immediately benefited by this expense." The 
expenditures, therefore, he thinks, "may very properly be 
defrayed by the particular contributions of these persons," 
that is, by fees of court. And he extends this principle to 
tolls of roads and various other expenses.^ The "particular 
contributions " of Adam Smith, in distinction from general 
contributions, are nothing but fees in distinction from taxes. 
The same distinction is found several decades before Adam 
Smith in the work of Justi. He, however, like the other 
Germans of his time, looked upon the Regalia, or lucra- 
tive prerogatives, as a separate class ; and hence classified 
public revenues into (1) domains, (2) regalia, (3) taxes, 
and (4) casual revenues, including prices and payments 
for special privileges.^ Later on, Rau gave these latter 
payments the name of Gehuhren or fees ; but the essence 
of the distinction is to be found in Justi, and still more 
clearly in Adam Smith. 

A fee, then, is a manifestation of the taxing power. It 
is a compulsory contribution for a service in which the 
element of public purpose must be present ; but it differs 
from a tax in several important points. 

First, a tax is levied as a part of a common burden ; a 
fee is assessed as a payment for a special privilege. The 
basis of taxation is the ability or the faculty of the tax- 
payer ; the basis of a fee is the special benefit accruing 
to the individual. In the case of a tax, this ability, it is 
true, may be influenced to a certain extent by the oppor- 
tunities or privileges or benefits received. But the dif- 
ference is the test. In the case of a fee, the benefit is 
measurable ; in the case of a tax, the benefit is not sus- 
ceptible of direct measurement. In the case of a fee, the 
particular advantage is the very reason of the payment ; 
in the case of a tax, the particular advantage, if it exists 
at all, is simply an incidental result of the state action. 

* Wealth of Nations, book v., chap, i., part iv. (vol. ii., p. 402, of Thorold 
Rogers' edition). Compare book v., chap, i., part ii. and iii. passim, 
» Justi, Staatswirthschaft, 2d edition, 1758, ii., pp. 95, 400-429. 






The question of special benefit was originally of minor 
importance, the mediaeval monarch exacted in the shape of 
fees and charges about what he chose, disguising exactions 
under the mask of payments for special privileges. Even 
there, however, it may be said, not that the idea of bene- 
fit was absent, but that the monarch made himself the 
judge of the amount of benefits. That his despotic esti- 
mate often resulted in hardship does not alter the theory. 
Gradually, however, the idea of actual benefit came to the 
foreground, untU it has finally become the controlling factor. 

A second distinction between fees and taxes is that a 
fee does not normally exceed the cost of the particular 
service to the individual. This, however, although com- 
monly made much of, is of subordinate importance. In 
the first place, it can obviously apply only to those fees 
paid in return for some positive work done by government. 
The government, indeed, must always give something in 
return for a fee ; but in many cases it may give only 
a permission to do something — a permission which costs 
almost nothing, and for which a considerable fee may be 
exacted. The controlling consideration here is not cost, 
but measurable special benefit. Historically, we know that 
these special charges were made entirely irrespective of 
cost.^ But even in the case of a positive action by the 
government, cost is simply another method of measuring 
special benefit.^ This has been overlooked, but is none the 
less true. In all competitive private enterprises the benefit 
to the individual is the cost. That is, the amount which the 
individual is willing to pay — and he is the best judge of the 
benefit to be derived — is the price ; and the price is fixed 
ultimately by the cost of production. The whole modern 
theory of marginal utility as the regulator of price is 

1 Professor Brentano calls attention to this historical fact. Cf. Faber, 
Die Entstehung des Agrarschutzes in Englandy p. 58. Both fail to notice 
the points made in the text. 

* The cost here referred to is at once the cost to the individual and the 
cost to the government. They are synonymous, because under the sup- 
I)08ition the government gives its services for cost. 


simply a way of stating the degree of special benefit to 
the individual ; and the true theory of price confesses that 
marginal utility in competitive enterprises resolves itself 
ultimately into cost of production. The benefit to the 
individual, therefore, is the cost. As soon as we have a 
private monopoly, however, the benefit to the individual 
diminishes in proportion to the sacrifice he is compelled 
to make in paying more than the cost of production ; 
and the excess of price over the normal benefit (as meas 
ured by cost) represents to this extent a tax on the indi- 

The same is true of governmental action. It may, and 
often does, happen that a government is not actuated by 
motives of profit, but, like a private competitor, sells its ser- 
vices for cost. Special benefit to the individual and cost to 
the government are then synonymous. But if the government 
seeks to make a monopoly profit and charges more than cost, 
then as before the special benefit to the individual may be 
said relatively to diminish as the charges increase, until finally 
the exaction becomes so great that the special benefit is merged 
in the special burden and the charge becomes not a counter- 
payment, but a special tax. On the other hand, the govern- 
ment may decide to charge less than cost, or even to offer its 
services gratuitously, in which cases the special benefit to 
the individual may gradually be swallowed up in the com- 
mon benefit. Here the very reason of the gratuitous service 
is that no special benefit exists, or that it results only inci- 
dentally from general state action. Thus we see that special 
benefit to the individual is correlative with cost to the gov- 
ernment. If the charge is less than cost, the special benefit 
is pro tanto converted into a common benefit, until finally 
there is no charge, because no special benefit. If the charge 
is more than cost, the special benefit is pro tanto converted 
into a special burden, until finally the charge is all tax, 
because it is all burden, and no special benefit. 

This point of view helps us out of a difficulty as to the 
line of cleavage between fees and taxes. Thus, if a charge 




IS made for the cost of judicial process, the payment is a fee, 
because of the special benefit to the litigant. If no charge 
is made, the cost of the process must be defrayed by gen- 
eral taxation; and the litigant pays his share in general 
taxes. If the charge is so arranged as to bring in a consider- 
able net revenue to the government, the payment by the liti- 
gant is a tax - not a general tax on all taxpayers, but a 
special tax on litigants, like the tax on lawsuits in some of 
our Southern commonwealths. The character of fee dis- 
appears only secondarily because the principle of cost is 
deviated from, but primarily because the special benefit to 
the litigant is converted in the first case into a common 
benefit shared with the rest of the community, and in the 
second case into a special burden. The failure to grasp the 
basis of this distinction, which is equally true of other fees, 
has confused many writers. 

A third distinction between fees and taxes may be found 
in the conditions attached to the service which the govern- 
ment performs. It may be said that in the case of a fee the 
government does some particular thing in return, while in 
the case of a tax it gives no special service. The particu- 
lar thing done by the government in return for a fee may be 
either the display of some positive energy, as in furnishing a 
water supply, or it may be a simple permission to do some- 
thing. The government may create direct utilities, or it 
may permit the individual to create utilities; but in each 
case it demands a return for the privUege. In the case of a 
tax, on the other hand, the government simply refrains from 
doing ; or, if it does anything at all, does it only as a gene- 
ral governmental action. This distinction applies to so- 
called special taxes, as well as to general taxes ; for even 
in the case of a special tax, the government does not 
pledge Itself to do any special thing for the individual as an 
mdmdual. It agrees to do some special thing for the com- 
munity or for the particular class involved, but it is wholly 
immaterial to the government whether the individual avails 
himself of the incidental advantage accruing to the class as a 


whole. Even in the case of special taxes we are not con- 
fronted with the principle of give and take, or quid pro quo, 
as regards individuals. 

A further distinction that has been very fruitful of confu- 
sion is that between the business licenses or fees, and busi- 
ness taxes. The legal terms applied to such payments must 
not lead us astray. For instance, a given charge levied 
on certain retail businesses is called in various American 
states a fee, a license, a license fee, a license tax, a special 
tax, a specific tax, a privilege tax and an occupation tax.i 
A certain payment exacted from insurance companies is called 
indifferently an insurance fee, an insurance license, an in- 
surance license fee, an insurance tax and an insurance 
license tax. A certain payment imposed on some corpora- 
tions is called variously a charter fee, a bonus on charters, a 
license tax, a tax on certificates, an organization tax, a cor- 
poration tax and even a corporate franchise tax.* 

The real distinction between a license charge and a busi- 
ness tax is that the non-payment of a license charge 
normally renders the exercise of the business illegal, while 
the non-payment of a business tax does not render it illegal. 
More broadly, it may be stated that a license charge is a 
condition precedent, while a business tax is a condition (if 
a condition at all) subsequent. 

A license charge, however, may be either a license fee or 
a license tax; ^ and in order to ascertain which it is, we must 
fall back on the preceding distinctions. When the license 
is imposed to cover the cost of regulation or to meet the 
outlay incurred for some improvement of special advantage 
to the business, it may truly be said that the licensee gets 
a special benefit from the privilege, a special benefit measured 

^ Compare my monograph on Finance Statistics of tJie American Com- 
monwealths^ 1889, pp. 88-96. 

* Compare supra, p. 175. 

« This distinction is overlooked by the American legal writers. Thus Black 
on Intoxicating Liquors, § 108, makes a labored argument to distinguish taxa- 
tion from license, while in reality he is distinguishing license fees on the 
one hand from license taxes and business taxes on the other. 






by the cost. The charge would then, as m the common 
case of cab licenses, be a fee. When, however, the charge 
for the license to carry on a business, which before the 
imposition of the restrictive law was open to any one, is 
purposely so high as to bring in a distinct net revenue to 
the government above the cost of regulation, we can no 
longer properly speak of special benefits to the licensee, 
since the special benefit is converted into a special bur- 
den ; the charge is then no longer a license fee, but a 
license tax. This is the case with some of the so-called 
license or privilege taxes in the Southern commonwealths. ^ 
Finally, if the payment is not conditional upon taking 
out a license, but is assessed on certain elements of the 
business, such as purchases, sales, capital, etc,^ as in the 
French patentes^ the German Grewerhesteuer^ and some of 
the American payments, then we have not license taxes, but 
business taxes, because the condition is not precedent, but 
subsequent. The distinction between license tax and busi- 
ness tax is one of condition of payment : the distinction 
between license fee and license tax is one of benefit and cost. 
There is, therefore, some truth at the basis of the distinc- 
tion drawn by the American judges between the police power 
and the taxing power ; but it is to be understood in a sense 
quite different from that usually adopted. The distinction 
should really be drawn between a license fee and a license tax 
on the one hand, and between a license tax and a business tax 
on the other. The distinction between police power and tax- 
ing power is not valid, because from the broad scientific 
point of view a fee may be equally an exercise of the taxing 
power, while a tax is none the less a tax because it is 

1 This is really the basis of the recent decision of the United States 
Supreme Court in the case of Harmon vs. City of Chicago, Supreme Court 
Keporter, xiii., no. 10, p. 306 (Feb. 13, 1893). A license charge for 
using the Illinois Biver is declared to be a tax, and in conflict with the 
interstate commerce provision of the constitution, because it is not a com- 
pensation for any specific improvement. In the latter case it would be a 
license fee or toll, and perfectly valid, as decided in Huse vs. Glover, 11^ 
U. S. 643. 


regulative. When the American judges hold that a license 
fee must " not exceed the necessary or probable expense 
of issuing the license and of inspecting and regulating the 
business," ^ they are drawing the line between license fees 
and license taxes, although legal complications may compel 
them to assert that it is a distinction between the police power 
and the taxing power. For instance, the decision that high 
liquor licenses are not taxes — a decision quite untenable 
from the standpoint of public finance — is due simply to cer- 
tain constitutional limitations, and to the policy of upholding 
such payments. Liquor licenses, if high enough, are no less 
taxes than the Southern license or privilege taxes ; and the 
attempt to call them license fees, in order to uphold them 
under the police power, is the result of a praiseworthy but 
palpable legal fiction. To say, as Cooley does, that a high 
liquor license is only a license fee covering the cost of regula- 
tion, because " it is reasonable to take into account all the 
incidental consequences that may be likely to subject the 
public to cost " (such as prevention of resulting crime and 
disorder), is a considerable stretching of the term. It seems 
impossible to state how much of pauperism and crime is due 
to drink and how much to other causes. 

The truth which the judges have vaguely seen, and 
which they have attempted to realize in their decisions, then, 
is simply this : a fee is a payment for a service or privilege 
from which a special measurable benefit is derived, and nor- 
mally does not exceed the cost of the service ; a tax is a 
payment where the special benefit is merged in the common 
benefit, or is converted into a burden. A fee remains a fee, 
whether levied under the taxing power or the police power ; 
and a tax is no less a tax when classified under the police 
power than when put under the taxing power. 

It seems, then, that writers like Professor Bastable, who 
desire to discard fees as a source of revenue co-ordinate with 
taxes, are taking a step backward, and are abandoning a 
distinction dating back at least to Adam Smith. 

1 Cooley, TaaMtiony p. 598. 






It is, however, useless to oppose the creation of a class of 
revenues co-ordinate with taxes; for, even if we disregard 
fees, we cannot shut our eyes, as most writers have done, to 
the existence of another important class of compulsory rev- 
enues which are not taxes. These are known as special 

IV. Special Assessments, 

It has already been pointed out that classification of 
public revenues has depended upon historical conditions. 
Special assessments are a comparatively modern and a spe- 
cifically American development, although the germ of the 
system may be found in the Roman edict : Construat vias 
publicas unusquisqus secundum propriam domum.^ In France 
and England they have been so rarely used as to escape 
detection, although of late years the policy of introducing 
the principle more widely has begun to be discussed in 
England.^ In Belgium and Germany they have been intro- 
duced in the past few decades, and are occasionally men- 
tioned in the latter country under the head of Beitrdge,^ 
Even so recent writers as Leroy-Beaulieu and Bastable 
ignore them completely. In the earlier books on public 
finance we find no mention of them. Nowhere do we find 

1 Quoted in entirely another connection by Sax, Die Verkehrsmittel in 
Volks- und Staatsuoirthschaft^ i., p. 186. 

3 In France they may be traced back to 1672 and to a more general law 
of 1807, known as the law on "Pindemnit6 pour payement de plus-value." 
But only about twenty to twenty-five cases of application are known. Com- 
pare Aucoc, 2>roi< Administratifj ii., pp. 732 et seq. For the earlier cases, 
see Clement, La Police sous Louis XIV., p. 144. — For England see infra, 
chap. xi. 

* In Prussia they are legaUy known as Interessentenzuschiisse. Compare 
Leidlg, Preussisches Stadtrecht, p. 375, and Loening, Verwaltungsrecht, p. 
580. Other forms of special assessments are known as Deichbeitrdge, and in 
Baden as Soziallasten. The whole system seems to have received a greater 
development in Belgium than anywhere else in Europe, and yet it has not been 
noticed at all. The Belgian, Denis, does not mention it in his recent work, 
Vlmpot. The details of the system may, however, be found in Leeman's 
Des Impositions Communales en Belgique, 2d edition, chaps, v.-x. He calls 


any adequate discussion of special assessments in theory or 
in practice, or any successful attempt to correlate them with 
other forms of compulsory contributions. 

No American who treats of public finance as a whole can 
fail to be struck with the importance of special assessments 
in actual practice. To take only two examples: in New 
York City, in 1891, special assessments yielded over $2,400,- 
000; while in Chicago, in 1890, they yielded $8,790,443 — a 
sum actually larger than that raised by taxes. The courts 
have been filled with litigation respecting special assess- 
ments, and certain valuable principles have been slowly 
evolved. Yet no one has attempted to construct a theory of 
special assessments, or to assign them to their proper place 
in the list of public revenues. Thus the theory of special 
assessments has not been worked out in Europe, because the 
facts were not deemed sufficiently important; and it has not 
been worked out in America, because there have been almost 
no American theorists in public finance.^ 

A special assessment may be defined as a compulsory con- 
tribution, levied in proportion to the special benefits derived, 
to defray the cost of a specific improvement to property 
undertaken in the public interest. When a new street is 
opened, for instance, it is deemed equitable that the ex- 
pense should not be entirely borne by the whole community, 
but that it should be defrayed in part or in whole by the 
owners of abutting real estate, whose property receives an 
undeniable benefit in the immediate enhancement of value. 
The advantages of the particular government services accrue 
in great part to the property owners; and it is therefore 

them ttixes, but confuses them continually with taxes proper, including 
special taxes. 

1 Since the above words were originally published, one of my students. 
Dr. Victor Kosewater, now editor of the Omaha Bee, has completed his 
monograph on Special Assessments : a Study in Municipal Finance^ which 
appeared as vol. ii., no. 3 of Columbia University Studies in History, Eco- 
nomics and Public Law. This monograph contains a comprehensive treat- 
ment of the whole subject, historical, legal, statistical and theoretical, and is 
now the chief authority on the topic. 



right that they should bear the burden in proportion to the 
advantages received. Without going into the history of 
the system, we may say that, beginning in New York in 
the seventeenth century, it has been well-nigh universally 
adopted in the United States. Its operation extends to 
improvements like the following: opening, laying out, 
grading, paving and repaving, planking and curbing the 
streets ; sprinkling them with water, illuminating them 
with gas and electric light, and even ornamenting them 
with shade-trees; constructing drains, sewers, levees and 
embankments ; laying wire conduits and water pipes ; bet- 
tering waterways and dredging rivers; laying out and 
developing public parks, squares and drives. In all these 
cases the entire expense, or a certain portion of it, is met 
not by general taxes, but by special assessments. We are 
here to consider the theory of special assessments. 

In the first place, special assessments represent an exercise 
of the taxing power. In the early days various attempts 
were made to justify them under the power of eminent 
domain and under the police power ; but in 1851 a leading 
New York case^ swept away all these refinements, and de- 
cided that special assessments were a constitutional exercise 
of the taxing power. The reasoning of Judge Ruggles in 
that case is so convincing as to need no comment or defence ; 
and the whole development in the United States has since 
proceeded on the line he laid down. 

In a special assessment the element of public purpose must 
always be present ; for if levied solely for private purpose 
it would be an act of confiscation, not an exercise of the tax- 
ing power. Again, a special assessment must be capable of 
apportionment : there must be an assessment district, and 
the assessment must not be arbitrary. The countless cases 
which enforce these points show, in short, that special assess- 
ments, like fees, are an exercise of the taxing power. 

1 People vs. Brooklyn, 4 N. Y. 419. Some of Judge Ruggles' oUter dicta 
on the principles of taxation are open to serious question. But as they 
have really nothing to do with the pomt decided in the case, we pass them by. 


Special assessments, like fees, are not, however, taxes in 
the ordinary or narrower sense. Taxes, as we know, are 
compulsory contributions levied to defray the expenses in- 
curred in the common interest, without any reference to 
particular advantages accruing to the taxpayer; but in 
special assessments, as in fees, the services for which the 
expenses are incurred redound to the particular benefit of 
the individual. The primary test of a tax is that it imposes 
a common burden : the primary test of a special assessment 
is that it implies a special benefit. From this one great 
distinction flow all the others, which may be summed up 
as follows : — 

First. In a special assessment the special benefit to the 
individual is measurable. In a tax the special benefit does 
not exist, or, if it exists at all, it results incidentally from 
the individual's share in the common benefit ; it is not 
separately measurable. No one, perhaps, will be apt to 
confound a special assessment with a general tax; but there 
is also a clear line of distinction between a special assess- 
ment and a special tax. An adequate discussion of the rela- 
tion between a general tax and a special tax belongs to the 
question of the sub-classification of taxes in particular, and 
would lead us too far astray here. But we can say at all 
events this : a general tax, like the ordinary state or local tax 
in America, is not levied for any definite, particular expendi- 
ture, but is assessed for general governmental purposes ; a 
special tax, like the English local rates or the local taxes 
in some American states, like New Jersey,^ is assessed for 
the accomplishment of some special task to which the gov- 
ernment is pledged, and is levied on a definite section 
of the population. 2 The police rate, the sewer rate, the 
poor rate, the lighting rate, are each levied for the spe- 
cial purpose and on the definite class of taxables subject 

1 Compare Comptroller's Report of the state of New Jersey for 1891, 
financial condition of counties, efc, pp. 1-87. 

2 These taxes must of course not be confounded with the so-called " special 
taxes" in some of the Southern commonwealths, which are known as license 
or privilege or business taxes in the other commonwealths. 








to the rate. But this special tax is none the less a veri- 
table tax ; it is levied for a public purpose, it is assessed on 
what is deemed to be the faculty or "means" of the 
taxpayer ; and there are no particular benefits accruing to 
him as an individual. Even if he does perchance derive 
a benefit, it is not a special, measurable, individual benefit 
apart from the common benefit that the other members of 
the class derive ; it is simply an incidental result of his 
share in the common benefit. In the special assessment, 
on the other hand, the special individual benefit is dis- 
tinctly measurable and forms the basis of the assessment. 
The English local rates, for instance, might seem to be in 
no wise distinguishable from the American assessments. It 
is a clear principle of the English system of local rates, 
however, that " the exact measure of the benefit is not the 
measure of the liability to be taxed," while the reverse 
is true in the American system of special assessments. ^ In 
other words, the test of the special assessment is measurable 
special benefit : the test of the special tax is special taxable 
capacity or faculty, just as the test of the general tax is 
general taxable capacity or faculty. The distinction is quite 
clear ; yet the few writers who have spoken of special taxes 
at all have almost universally confused them with special 

Secondly. Taxes may be proportional to property, or to in- 
come, or to expense, or to any other test of faculty, or they may 
be progressive rather than proportional ; special assessments 
can never be progressive, but must always be proportional 
to benefits. This is the recognized principle m American 
jurisprudence; and the only difficulty now is to decide 
what is to be regarded as the most equitable standard 
for the measurement of benefit. Acreage, frontage, value, 
superficial area of the property — all these have been 
upheld as proper guides to apportionment, and as constitu- 
tional tests of presumptive special benefit. Not only are 

1 For a fuUer statement of the distinction between a special tax and a 
special assessment, see infruy pp. 346-350. 


special assessments void when there is no special benefit ; 
they are also voidable when the charge exceeds the special 
benefit ;i for to charge more than the exact benefit would 
be equivalent to taking private property without due com- 
pensation. In the special assessment there must be compen- 
sation; in the tax there is no question of compensation. 
The only matter in dispute in the American courts is 
whether the special benefit need be actual or may be pre- 
sumptive ; the general tendency of the decisions is to make 
the legislative and administrative discretion rather wide.^ 

Thirdly. Special assessments are confined to specific local 
improvements, while the sphere within which taxes operate 
is in this respect unlimited. 

Fourthly. For a special assessment the government per- 
forms a definite, particular act in return ; it is an instance 
of service and counter-service, of give and take. For a tax 
the government does not pledge itself to do a particular thing 
for the particular individual in return. The reasoning here 
is precisely the same as that adduced above in discussing the 
distinction between taxes and fees. A special assessment is 
here on exactly the same footing as a fee. 

Fifthly. Taxation is resorted to in order to defray the 
running expenses of government, and to effect in time the 
amortization of the debt ; while the object of special assess- 
ments is to provide for the capital account — to increase, as 
it were, the permanent plant of the community.^ 

The distinction between special assessments and taxes has 
been widely recognized in American jurisprudence ; and the 
constitutional limitations applied to taxation have generally 
been declared inapplicable to special assessments. As Cooley 
puts it, " The overwhelming weight of authority is in favor 
of the position that all such provisions for equality and 
uniformity in taxation by value have no application to 

^ Cf. the celebrated Agens cases in New Jersey. State w. Newark, 37 
N. J. L. 416 ; Bogert vs. Elizabeth, 27 N. J. Eq. 508. 

2 Cf. Matter of Church, 92 N. Y. 6 ; Allen vs. Drew, 44 Vt. 174 ; and 
other cases cited in Rosewater, Special Assessments, 

* Rosewater, op. cit., p. 129. 









special assessments." Exemptions from taxation, moreover, 
do not imply exemptions from special assessments. Special 
assessments are none the less a distinct class because in some 
laws they are called taxes. In some cases, in their anxiety 
to uphold the distinction, the same courts interpret the word 
" assessment " in the phrase " uniform rate of assessment and 
taxation " sometimes in one way, sometimes in the other. That 
is, when special assessments must be put under the taxing 
power in order to be upheld, " assessment " is held to be used 
in the general sense, and to mean taxation ; when in other 
cases special assessments can be upheld only by being dis- 
tinguished from taxes, " assessment " is held to be used in 
the technical sense, and to mean something different from 
taxation. All the ingenuity of the American judges has 
been needed to attain the result now achieved — the marked 
distinction between special assessments and taxes; ^ but their 
efforts have been sensible, and the result is in accord with 
the teaching of the science of finance. 

Special assessments hence are not taxes. They differ 
from taxes in the same way that fees differ from taxes, 
1 One recent case is especiaUy noteworthy as illustrative of ingenious 
distinction. The general trend of authority, as we have shown, is to give a 
wide discretion, and to uphold assessments per front foot as a good presump- 
tive test of special benefit. Yet in the celebrated Illinois case of Chicago vs 
Lamed, 34 111. 203 (1864). the court held that the provisions of the constitu- 
tion as to uniformity and equality of taxation were unusually stringent, and 
were applicable also to special assessments. The court was really mistaken 
here, as the Illinois constitution did not differ from many others where the con- 
trary interpretation was adopted. Still, as a consequence of their view 
assessments could be made on each lot only up to benefit actually proved, 
while the remainder of the cost would have to be defrayed by general taxes. 
Assessment by front foot was held to be invalid. Yet later the court, 
evaded this ca^e by a very fine distinction. The constitution of 1870 gave 
local authorities the right to levy - special taxes for local improvement - 
and m White t,.. People, 94 lU. 613, the court held that a special tax wa^ not 
a special a^essment, and that a special tax might exceed the actual benefits 
to ttie particular lot. An assessment by front foot is hence valid, and the 
system in Illinois to-day is the same a^ in other states. Of course the -special 
tax of the lUmois constitution is simply the " special assessment " of other 
states, and is even known by the latter name in niinois itself. There is, as 
we have seen a distinction between a special tax and a special assessment; 
but it is not the distinction drawn by the Illinois court 


since both fees and special assessments rest on the doc- 
trine of equivalents. Fees, special assessments and taxes 
have points in common in that they are all manifestations 
of the taxing power. Fees and special assessments have 
additional points in common, which they both possess 
in distinction from taxes. But, finally, fees and special 
assessments differ in some respects from each other. We 
have distinguished special assessments from taxes ; it 
remains to distinguish them from fees. 

It may, indeed, be claimed that there is no distinction, and 
that special assessments simply constitute a sub-class of fees. 
It is true, as has just been pointed out, that what characterizes 
taxes proper as against the other manifestations of the tax- 
ing power is general benefit as against measurable special 
benefit. If we name the first kind taxe%^ we might indeed 
give to the second kind some generic name. Special assess- 
ments would then be simply a distinct sub-class. But they 
are so extremely important and so far overshadow all the other 
cases of special benefit taken together, that it seems advisable 
to put them into a separate category. Especially in the 
United States, where the judges are just beginning to 
wrestle with the actual problems, it would tend to confuse 
rather than to clarify, if we put special assessments and cab 
licenses, for instance, into the same category. Let us then 
attempt to point out in what respects special assessments 
differ from fees. 

In the first place, special assessments are levied only for 
specific local improvements : fees may be levied for any 
services. The field of operation of special assessments is 
restricted ; that of fees is unrestricted. 

Secondly, special assessments are paid once and for all ; 
fees are paid periodically, according, to each successive ser- 
vice. The only qualifications to this statement are that 
special assessments may, in a few cases, be spread over a 
longer period, and may then be payable by regular instal- 
ments ; while, on the other hand, a fee is of course paid 
only once when the service is demanded only once, as in the 





case of a marriage fee. That, however, does not invalidate 
the distinction. In the special assessment the payment is 
capitalized in a lump sum, payable generally at once, but 
occasionally by instalments ; in the fee, on the other hand, 
the payment is, so to speak, fragmentary and irregular. 
In a given case there may be a choice of methods. For 
instance, in constructing a bridge, the cost may be defrayed 
either by levying a special assessment on the owners of 
abutting property or by charging tolls on those using the 
bridge, who are presumably in great part also the owners 
of abutting property or their friends and dependents. If 
the benefits redound in greater part to these property 
owners, the cost should be paid by a special assessment ; if 
the benefits redound in greater part to individuals who are 
not property owners, the cost should be paid by a fee (toll); 
if the benefits are so wide-spread that the whole community 
is almost equally interested, the cost should be paid by 
neither a special assessment nor a fee, but by a general tax. 

Thirdly, a fee is levied on an individual as such : a special 
assessment is levied on an individual as a member of a class. 
That is, in the case of special assessments there must always 
be an assessment area over which the whole assessment is 
levied, to be then further distributed according to a definite 
rule of apportionment. It is, for instance, a settled rule of 
the American law, that in assessing benefits the assessors 
cannot restrict themselves to the cost of the improvement 
in front of a particular lot.^ In the case of a fee, on the 
other hand, the government looks not to a class or to an 
area, but to the separate individual. 

Fourthly, a special assessment must always involve a bene- 
fit to real estate : a fee is paid for a service which may 
benefit other elements than real estate, such as personal 
property, or other attributes of the individual without any 
reference to property. 

There is one further distinction, which, however, is more 
imaginary than real. It might be maintained that special 
1 Ex parte Mayor of Albany, 23 Wend. 277. 


assessments are like direct taxes, and fees like indirect taxes, 
in the sense of taxes on consumption or on acts and commu- 
nication, because the former are compulsory and the latter 
voluntary. But this distinction is badly expressed, and 
really untenable; for, notwithstanding the contrary state- 
ment, which has frequently been made, indirect taxes are not 
a whit more voluntary than direct taxes. It is true that if 
a man chooses to go without tobacco he may escape the to- 
bacco tax ; but it is equally true that if a man chooses to go 
without certain kinds of property or income, he may escape 
to that extent the property tax or the income tax. Indirect 
as well as direct taxes are compulsory, not voluntary, contri- 
butions. In the same way, there is no truth in the statement 
that a fee is voluntary and a special assessment compulsory. 
It is true that we do not need to pay a pedler's license fee if 
we do not care to peddle; but, on the other hand, we do not 
need to pay a special assessment if we do not care to o^vn 
the land. Further, when the payment of a fee is connected 
with necessary every-day transactions, as are mortgage regis- 
tration fees or marriage fees, there can be no question of the 
compulsory nature of the transaction. Birth and death 
cannot well be termed voluntary actions ; yet a registration 
fee for a birth or death certificate does not differ in character 
from any other fee. Fees and special assessments, indirect 
and direct taxes, are all compulsory contributions.^ 

It is clear, then, that there is a line of distinction be- 
tween fees and special assessments, although not so sharp 
as between fees and special assessments on the one hand and 
taxes on the other. There is no danger of confusing them 
in practice ; yet very little has been done to differentiate 
them in theory. Even Wagner, though compelled in the last 
edition of his work to recognize the existence of " Beitrdge,'^ 
mentions them in a few lines as merely an unimportant 

1 Neumann, who is the only writer to attempt a distinction between fees 
and special assessments, makes it turn on a very dubious distinction between 
direct and indirect taxes. Die Steuer und das offentliche Interesset pp. 327, 




I , 

addendum to fees. Of course, it would be easy to follow 
Professor Bastable's example, and deny the existence of 
fees as a separate class, in order to avoid the " creation of a 
distinct group of state receipts co-ordinate with that derived 
from taxation/' 1 But even he, when confronted with the 
existence of special assessments, will have to revise his 
classification, and create at least one "distinct group co- 
ordinate with " taxes. And if this one group is separated 
from taxes, it will be difficult to refuse to cut off another 
group, for the arguments that apply in the one case apply 
equally well in the other. 

V. Prices. 

We now come to a final problem which has given rise 
to considerable difficulty. Where shall we class the pay- 
ments made for services rendered by certain governmental 
enterprises, like canals, post-office, telegraph and railroads ? 
Are they taxes, are they fees, are they compulsory payments 
at all, or are they not rather to be called prices, and classed 
with the contractual income of the state ? 

Some writers say that if the government goes into a public 
business, like the post-office, the charges are compulsory; 
but that if it goes into a private business, like a shoe 
factory or a coal yard, the revenue belongs to the indus- 
trial domain. This seems to be a decided mistake; for 
there is no such sharp line of demarcation between a 
naturally public and a naturally private business. Every- 
thing depends on the view taken for the time being as to 
the poUcy of governmental interference. The post-office 
is everywhere in the hands of the government, simply because 
the enterprise arose at a time when there was no dispute 
over the policy. The telegraph, the telephone, and stiU 
more the railroad are controlled by the government in some 
countries, and by individuals in other countries, because 
these industries developed after the discussion as to the limits 

1 Public Finance, p. 221. 


of governmental interference arose. Where shall we put 
the gas industry, which in some municipalities is a public, 
and in others a private, business? Where shall we put 
the water-supply and the street-railway business? Some 
countries have monopolies of the manufacture of salt and of 
tobacco, which are then regarded as modes of taxing the peo- 
ple who use salt and tobacco. Would there be any differ- 
ence in principle if the government went into the coal 
business or into the shoe business, in order to tax the people 
using coal or shoes ? It might indeed be very bad policy 
for the government to extend its functions ; but there is 
no natural and immutable line of cleavage between a public 
and a private business, between a monopoly of tobacco and 
a monopoly of bread or of iron. The limit is always fixed 
in accordance with temporary public feeling as to the proper 
social policy ; but the question as to how far vital public 
interests are at stake has been answered, and will always 
be answered, differently in different countries and in differ- 
ent ages. 

The distinction, therefore, is not, as most writers have 
assumed, dependent on the nature of the enterprise.^ As a 
matter of fact, the payment for the same service may be a 
price in one state, a fee in a second, or a tax in a third. The 
explanation of the difficulty is to be sought in an elaboration 
of the very principle which has just been employed to show 
the difference between special assessments, fees and taxes. 
In other words, the controlling consideration in the classi- 
fication of public revenues is not so much the conditions 
attending the action of government or the kinds of business 
conducted by the government as the economic relations exist- 
ing between the individual and the government. 

1 For instance, Wagner classes telegraph and postal charges among fees, 
railroad charges among industrial revenues. Schall limits fees to services for 
"essential state purposes" (wesenUiche Staatszwecken). Compare Schon- 
berg's Handbuch der politischen Oekonomie, iii. (3d edition), p. 98. Roscher 
(Finanzioisaenschaft, p. 22) and Vocke (Die Abgaben, AuHagen und die 
Steuer, pp. 223-566) also except payments for post, telegraph and railroads 
from the category of fees. 

I \ 

; i 



T J , 





Let lis attempt to make this clear by taking up in turn 
the various classes of revenue. 

The simplest case arises when government decides to go 
into a purely private business. The government sees private 
individuals making money out of certain occupations, and 
considers why it also should not do likewise. It there- 
fore enters upon the business, and conducts it in precisely 
the same way as would an individual. Such instances were 
very common in former times, when governments carried 
on all kinds of private occupations, such as manufacturing 
pottery, loaning money, or conducting commercial enter- 
prises ; but in modern times this has become less usual. 
Many states, nevertheless, still own real estate, either rent- 
ing or utilising it and selling the produce in the open 
market; some states still carry on a banking business; and 
others deal in commodities, like Holland in tobacco. Chili 
in guano, and India in opium. In all such cases the chief 
consideration with the government is fiscal; and the charges 
are precisely the same as would be made by private indi- 
viduals. In fixing the price, the government is actuated 
by the same motives that obtain in private business, whether 
the business be competitive or monopolistic. It is imma- 
terial to the purchaser whether he buys from the state or 
from a private person ; for he has to pay the same in each 
case. The commodity or service supplies his own private 
wants, and there is nothing public about the transaction 
except the mere accident that the seller is a public agent 
rather than a private person. The charge made by the 
government is therefore a gwa«i-private price ; it is a purely 
contractual payment, resting on an agreement between the 
government and the purchaser. The special benefit which 
the individual receives is to him the controlling considera- 
tion ; and the matter of general interest or of public purpose 
is only an incidental matter. 

We now come to the next case, where the government 
decides, for special reasons not purely fiscal, to enter upon 
certain enterprises which have more or less of an industrial 


nature. It is found by experience that the retention of 
these enterprises in unregulated private hands is not thor- 
oughly satisfactory. The government, therefore, either leaves 
these occupations to private initiative, but subject to careful 
regulation, or takes such business into its own hands. 
The reason for interference is not public gain, but public 
policy ; it is now a matter of common interest, and no 
longer purely and solely of private interest. 

The familiar examples of such enterprises are the post- 
ofiice, the telegraph, the telephone, the railway, the water, gas 
and electric-light supply. These are often called economic 
monopolies, because in them through the working of eco- 
nomic forces competition tends to become entirely inoperative. 
In most cases, too, they can be carried on only in virtue of some 
privilege or franchise conferred by the government. The 
public interest is therefore admittedly strong ; and whether 
it takes the shape of governmental regulation or of govern- 
mental ownership is, for our special purpose, immaterial. 

Let us assume the latter case. The problem then arises : 
What is the nature of the charge made by the government 
for the service or for the commodity which results from the 
operation of these enterprises ? 

The chief point is still the private interest of the indi- 
vidual. He buys his gas or his telegraph service to satisfy 
his private wants, very much as he would buy it from any 
individual or corporation. But a new element has entered, 
— the element of public interest, the satisfaction of the 
wants which one feels as a member of the community. The 
very reason why these enterprises have been made govern- 
ment enterprises is that the individuals who compose the 
community feel that they have a common, public interest in 
the assumption of the business by the government. They 
believe in municipal water-supply, for instance, because they 
are convinced for various reasons that this business ought 
not to be left in private hands. The government, indeed, 
may make a charge, which is undoubtedly a price paid by the 
individual ; but it differs from private prices. In the case 




■gaayeieeaMgjiii ,-JLg ii 




/ I 


\ .k 

of the private business the monopoly seeks only the greatest 
possible profits ; in the case of the public monopoly the gov- 
ernment seeks the greatest possible public utility. Even 
when the government makes a high charge, it does not aim 
simply at the maximum monopoly profits; for the public 
element always modifies the charges in some particular. If 
it did not so modify the charges, or at all events give better 
facilities for the same charge, there would be no reason for 
the assumption of the business by the public. 

The charge to the individual is thus a price ; but, instead 
of being ^^wa^i-private, it is now a public price. The relation 
of the government to the individual is not the same as in the 
preceding case. The special benefit to the individual, although 
it is still preponderant, is relatively less ; the public purpose 
has become of more importance. 

We come now to the really important point: The feel- 
ings of the citizens may undergo a further change, and 
the government may conclude to manage the enterprise 
in a different way. The element of private interest or 
special benefit may diminish, and the feeling of public inter- 
est may increase so as to become the controlling considera- 
tion. The government, because of these changed conditions, 
will now decide no longer to run the business on the princi- 
ple of profits. It will reduce the charges somewhat, so as 
perhaps only to cover the cost of operation, or not even 
to cover this cost. While it will still roughly endeavor to 
charge each individual according to the benefit he derives, 
it will stiU further modify these charges in the direction of 
the public interest, charging less to those who can afford it 
less. In other words, special benefit to the individual is 
still measurable and charged for ; but since the common 
interest of the community is now of more importance, the 
charge for special benefit may be slightly modified by other 
considerations, as in the case of the postal service, where 
newspapers are put into a lower class than letters. The 
charge to the individual has now become a fee. 

Finally, another change may occur. The citizens may 

become convinced that the public purpose has become the 
exclusive consideration, and that the special interest of the 
individual is swallowed up in the general interest. The 
government will now entirely abandon the principle of charg- 
ing according to special benefit, for one of two other methods : 
it will either make no charge at all to the individual for the 
special service ; or, if it still makes a slight charge, it will 
levy this not according to the principle of special benefits, 
but primarily according to the principle of faculty or ability 
to pay. The expenditure must indeed be defrayed, but it 
will now be met by a general charge on the whole com- 
munity, or by a charge upon that section of the community 
which avails itself of the service ; but even in the latter case 
it will not measure the special charge to the individual by the 
benefits he may personally receive. In other words, the pay- 
ment is now a tax — in some cases general, in others special. 
Let us illustrate this process : While a railway is in pri- 
vate hands, the individual traveller or shipper pays a private 
price. If the government buys up the railways and manages 
them in precisely the same way, the payment made by the 
individual is still a price — a ^'wasi-private price, because 
demanded by the government acting as if it were a private 
party. But the government, although it still seeks to make 
a profit, is likely soon to introduce some changes in the pub- 
lic interest. Because of the resulting changed relations be- 
tween the enterprise and the patron, the payment becomes a 
public price. After a short time the government may reduce 
its charges considerably, barely covering the cost, and may 
modify them still further in regard to individuals or to 
sections of the country by considerations of public policy. 
The payment is then practically a fee or toll. Finally, the 
demand may be made in the public interest, as in Australia to- 
day, for free railway travel. The payment then made by the 
community to defray the gratuitous railway service would 
be a tax. In the case of the common highways and the 
canals, this same evolution is discernible; and the final stage 
of free travel has actually been reached. 

i If 





* »♦ 




|4 ' 



As another illustration take the water-supply. At first 
often in the hands of a private company, it may then be 
managed by the city, but according to the same principles. 
Every one pays in proportion to his consumption, but pays 
more than it costs the city to supply the water ; the enter- 
prise is managed on the principle of profits. Then comes 
a change. The city, still charging according to consumption, 
limits its charges to cost. Then often comes another change; 
and the city, while still trying to make both ends meet, 
often charges each individual a lump sum, but makes the 
richer consumer pay more than the poorer, even though 
he consumes no more. Finally, we reach the stage already 
attained in some European cities, and now demanded for 
Detroit by Mayor Pingree, where the water is supplied 
to the citizens without charge, and where the expense of 
water-supply is put in the same category as the expense 
of street cleaning. The charge for water-supply has thus 
run through the various stages — private price, gwaw-private 
price, public price, fee, and tax. Some cities, indeed, may 
have jumped over the intermediate stages, may have started 
with the final stage, or may never have reached this stage. 
In fact, although this is unusual, the principle of develop- 
ment may even be reversed, the public interest may lag, and 
the methods of private management may again be introduced. 
The principle itself is, however, everywhere discernible, 
whether it works forward, as it usually does, or backward, 
as in some exceptional cases. 

Again, at the present time the charge for a postal stamp, 
like a canal or road toll, is almost everywhere a f ee ; ^ yet 
the charge might be so high that the special benefit would 
become a special burden, and the payments would become 

1 As early as 1766 Benjamin Franklin perceived, in part at least, the differ- 
ence between a fee and a tax. In reply to the question of the parliamentary 
committee, " Is not the post-office a tax as well as a regulation ? " he replied, 
** No : the money paid for the postage of a letter is not of the nature of a Ux : 
it is merely a quantum meruit for a service done." Do well. History of Tax- 
ation and Taxes in England, ii., p. 46. Franklin, however, failed to see 
that it might become a tax. 


taxes on communication or on transportation. This was very 
common in former times. Highways were at first in private 
hands, and the charge was an extortion levied by the feudal 
lord. Later the charge became a monopoly tax on transpor- 
tation ; then it became a toll ; until to-day the charges have 
generally disappeared, and the highways are managed on the 
principle of gratuitous service, and are supported out of the 
proceeds of a general tax. 

What has been said of the railway and of the water-supply, 
of the postal and of the highway systems, may be repeated of 
all other governmental enterprises — the canal, the telegraph, 
the telephone, the gas and the electric light, the horse rail- 
way and the trolley line, the docks, the markets and the 
ferries. Moreover, if the socialistic scheme is ever intro- 
duced, the same principle will apply to all the cases of 
governmental management of what once were private enter- 
prise. Whether the government ought to assume these 
enterprises is, of course, a question quite apart from this 
discussion of the economic and fiscal nature of the payments 
made by the citizens. 

The demands made by government for supplying the 
individual with commodities or services differ in character, 
then, according to the economic relations between the gov- 
ernment and the individual. Just as a fee may become a 
tax, so it may become a price and vice versd. While a price 
can never be a tax, the payment for the same service may 
take the form of a price in one state, a fee in a second, and 
a tax in a third. The real test is the economic relation be- 
tween the individual and the government, and the relative 
strength of the individual private interest as compared with 
the common or public interest. 

While there is thus a clear distinction, chiefly of degree, 
between a price and a fee, and between a fee and a tax, we 
find in actual life some payments which combine separate 
elements, and which it is difficult for any one but a trained 
observer to classify. Take, for instance, the combination of 
price and of tax. If the liquor business is in private hands 


II 11 



sssAys m taxation 




and the government imposes a tax on each glass sold, the 
individual pays a certain amount which includes both price 
and tax. If the price of a glass of liquor was five cents and 
the government levies a tax of one cent, the individual pays 
six cents, of which five is the price, and one is the tax. 
When the government has a monopoly of the liquor manu- 
facture or trade, as in some countries, the relation is exactly 
the same, and the charge may be even more than six cents. 
In fact, that is generally the reason why the monopoly is 
introduced ; but it is only the surplus over five cents that is 
the real tax. The same reasoning applies to other fiscal 
monopolies, like the tobacco or the sugar or the salt monopoly; 
the amount which the individual pays over and above what 
he would have to pay to a private vendor is the indirect tax. 
This might be true also of the charges for railway or for 
water-supply; but at present rarely applies, because they are 
not fiscal monopolies. They may be monopolized by the 
government ; but in almost every case the object is not to 
raise the price, but to diminish the price — not to make 
profits, but to secure general social utility. Yet just as the 
French and Italian governments impose taxes on the private 
railway tickets, the amount of which is separately printed, 
thus enabling the purchaser to distinguish between the price 
and the tax, the distinction might be made if the railways 
were owned and managed by the government. The pay- 
ments would be economically separable. 

In the same way, as has already been abundantly illus- 
trated, a given payment may include a fee and a tax. 
Governments, however, do not usually make this sharp dis- 
tinction. For instance, some American states speak of insur- 
ance fees ; other states call the identical payments insurance 
taxes. In some of the Southern states agricultural fees are 
sometimes called fertilizer taxes ; and on the continent the 
terms "fees" and "taxes" are often indiscriminately 
applied. Practically, this may not always be of great impor- 
tance ; but in theory the distinction is clear, and it is begin- 
ning to be recognized by the courts. 


A more difiicult and more confusing case arises when one 
payment is levied in the form of another, as when a public 
price is levied in the shape of a tax. Take for instance the 
water or the gas supply. In Europe, when the towns bought 
out the private water or gas companies, they at first con- 
tinued, as some do yet, to charge according to individual 
consumption. In some cases, however, for purposes of con- 
venience, they assumed that each household would use 
a certain quantity ; and as some of the local taxes were 
levied on the occupier, they simply added a certain 
amount to the tax, as in some English towns where a 
special water rate is levied like the other local rates, or as in 
Austria where an addition is made to the local tax on house 
rent. The payment is nevertheless a price, and not a tax ; 
for if more than the assumed normal quantity is used by any 
one, especially by a business man or by a factory owner, the 
charges are increased according to the consumption. If the 
charges were reduced, or if all idea of special benefit were 
abandoned and the charge were assessed on the whole com- 
munity or on part of the community irrespective of the rela- 
tive quantities consumed, then the payment might become 
a fee or even a tax, whether general or special. As a 
matter of fact, however, in most places to-day the payment 
is still a price, even though sometimes levied in the shape 
of a tax. Thus, the English have a separate class of munici- 
pal revenues called income from " gas and water undertak- 
ings," which shows that the distinction is dimly recognized. 
In New York the charge for Croton water is technically 
called the "water rate" or "water rent," although most 
people call it the water tax, and confound it with a 
genuine tax. Here, it is true, this " rate " is paid sepa- 
rately; but in some of the European cities, for pur- 
poses of convenience, it is simply added to an existing 
tax. Nevertheless so long as the economic relation of 
individual to the government is different, the charges, 
even though confused under the same appellation, are really 



r ' 




I t 



VI. Conclusions. 

To sum up the preceding discussion, we find that under 
actual conditions all public revenues are either gratuitous, 
contractual or compulsory contributions ; that the compulsory 
contributions are levied in virtue of the power of eminent 
domain, of the penal power (either as a separate power or as 
the fiscally important part of the police power), or of the 
taxing power ; and, finally, that the taxing power manifests 
itself in the three forms of fees, special assessments and taxes. 

In regard to the charges known as prices, there is no doubt 
that we must put qiLasi-pTivaXe prices under the head of 
contractual payments ; but public prices — the charges made 
for industrial enterprises under certain conditions — occupy 
a middle position, and might be called semi-compulsory. 
If the government manages an enterprise just like an in- 
dividual, the price is virtually a contractual payment ; if 
the government makes the whole community or part of the 
community pay, it is a compulsory payment; but if the 
government employs the intermediate principle of charge, 
the payment is neither wholly contractual nor wholly com- 
pulsory, but contains elements of each. The classification 
would then be as follows : — 




Public Property and Industry 
Eminent Domain .... 
Penal Power ...... 


Taxing Power . 




Fines and Penalties. 


Special Assessments. 


But if the real distinction is, as we have suggested, the 
economic relation of the individual to the government, the 
classification of charges would depend upon the impor- 
tance of the individual interest measured by the special 
benefit to the individual, as compared with the common 
interest or public purpose measured by the ability of the 
individual to contribute to public charges. In the one case 


the individual is the chief or only factor ; in the other case 
the individual sinks his own importance in the common 
welfare of the community, and whatever benefits he derives 
come to him only incidentally as a result of his membership 
in the community. At one extreme lie prices, which depend 
upon the relation of the government to some particular 
industry or individual ; at the other extreme lie taxes, which 
depend upon the relation of the government to all industries 
or individuals ; midway between these extremes lie fees. 
From this point of view, if we omit, as of no importance, 
expropriations and fines, there are only three great classes : 
riz., prices, fees and taxes. The essential characteristic of a 
fee is the existence of a measurable special benefit, together 
with a predominant public purpose : the absence of public 
purpose makes the payment a price ; the absence of special 
benefit makes it a tax. 

As these elements are, however, present in varying degree 
in different payments, the charges shade off into each other 
almost imperceptibly, forming intermediate classes which are 
of great practical importance. Thus the public price has 
certain elements of the price and certain elements of the fee ; 
but it is of sufficient importance to warrant its separation 
in a distinct category. Again, as we have seen, a special 
assessment has many points in common with the fee, but 
has a decided significance of its own. Our final classifica- 
tion would then be as follows : — 

1. Special benefit the exclu- 

sive consideration. 

2. Less special benefit, al- 

though still preponder- 

3. Special benefit measur- 


4. Special benefits still as- 

h. Special benefits only an 
incidental result. 

Public purpose inciden- Quasi-private Price. 

Public purpose of some Public Price. 


Public purpose of still Fee. 

greater importance. 
Public purpose the con- Special Assessment 

trolling consideration. 
Public purpose the ex- Tax. 

elusive consideration, 

principle of faculty or 









The above classification would result in the following 
definitions : — 

A quasi-private price is a voluntary payment made by an 
individual for a service or commodity sold by the government 
in the same way as a private individual would sell. 

A public price is a payment made by an individual for a 
service or commodity sold by the government primarily for 
the special benefit of the individual, but secondarily in the 
interest of the community. 

A fee is a payment to defray the cost of each recurring 
service undertaken by the government primarily in the public 
interest, but conferring a measurable special advantage on 
the fee-payer. 

A special assessment is a payment made once and for all to 
defray the cost of a specific improvement to property under- 
taken in the public interest, and levied by the government in 
proportion to the particular benefit accruing to the property 

A tax is a compulsory contribution from the person to the 
government to defray the expenses incurred in the common 
interest of all, without reference to special benefits conferred. 

Note. — Just as this chapter is going to press the second edition of Basta- 
ble's Public Finance reaches me. In an appendix to his chapter on Classifi* 
cation, Professor Bastable discusses the general theory. He refers only to 
my first article, published in 1893, and ignores the second, which changed 
the theory in some points. In not accepting the distinction between fees 
and taxes, Professor Bastable puts himself entirely out of touch with all 
modem writers on finance outside of France. In not accepting the dis- 
tinction between special assessments and taxes he shows that he is not fully 
alive to the theoretic importance of the '* Betterment " question in England, 
which is discussed in chap. xi. of this work. As to the question at issue in 
the treatment of prices, I am content to abide by the above exposition, which 
is really not touched at aU by Professor Bastable*s criticism. 

Note of 3d Ed. — It is gratifying to see that the French and Italian 
writers have now adopted what is fundamental in the above chapter. See 
Leroy-Beaulieu, Traite de la Science des Finances (6th ed., 1899), I., chap, 
vii. ; and Graziani, Instituzioni di Sciema deila Finame^ 1897, Book IV., 
chaps L and v. 



Industrial democracy is responsible for many changes, 
but few are more significant than those effected in the fiscal 
methods of recent times. In framing these newer systems 
modern nations have been confronted by two fundamental 
problems. The first is that of bringing about greater 
justice in distributing the weight of taxation among differ- 
ent classes of the community ; the second is that of cor- 
rectly apportioning the burdens among the various spheres 
of government. 

The second problem, although of less importance in 
national than in federal states, has everywhere attracted an 
increasing amount of attention, owing to the demands made 
by industrial life upon political organizations, and to the 
growing complexity in the relations between co-ordinate and 
subordinate governments. In former times, when local 
expenditures were insignificant, and when the geographical 
aspect of industrial relations was simple in the extreme, 
the question of the due apportionment of public revenues 
among independent or overlapping jurisdictions scarcely 

Important though this be, the growth of industrial democ- 
racy has brought into still more prominent relief the diffi- 
culties of the first problem. Revenue methods, as they 
came down to us from bygone centuries, were defective 
in one of two ways. In some cases they were simply survi- 
vals of a system originally just, but which was calculated for 
more or less primitive economic conditions, or at all events 
for an economic life which, whether primitive or not, was 
X 305 





I , 





, ♦ 







fundamentally different from that of modern industrial 
society. Since political conditions, and therefore fiscal 
measures, depend in last resort largely on social and eco- 
nomic relations, it was but natural that the revenue system 
should become antiquated, and that what was conceived in 
justice should ripen into practical injustice. In many places 
to-day the fiscal demands of the new social democracy are 
legitimate protests against the continuance of mediseval 
survivals in modern life. 

In other cases, revenue systems were painfully lacking in 
another way. It is unfortunately true that the dominant 
social class has often succeeded in strengthening its hold by 
thoroughly selfish fiscal expedients. In such cases there was 
no pretence of equity even in the original imposition of the 
system. It did not need to grow bad, because it was bad 
from the very start ; it was based not on justice, but on 
might. With the growth of industrial democracy, however, 
the maintenance of the old-time abuses became increasingly 
difficult ; one by one they were recognized as such, to be 
lopped off at the first opportunity. In order to establish the 
long-delayed equities, it was necessary not only to pull down 
but to build up. Some, at least, of the recent changes which 
in themselves seem extremely radical, will therefore appear 
less extreme when regarded as parts of a larger whole 
— as a sort of compensation for what there is still left of 
injustice in existing systems. 

Thus it is that tax reform is everywhere in the air. 
Demanded in some countries because of the divergence 
between economic conditions and fiscal methods, it is urged 
in others as a concession to those who have hitherto had less 
than justice. In both cases it is a product of modern industry 
and of modem democracy. 

In this chapter it is proposed to call attention to the 
great changes recently introduced in such widely differ- 
ent countries as England and Holland, New Zealand and 
Prussia — changes, all of them effected within a period of 
scarcely more than twelve months, and springing from the 



same general desire to realize the principles of justice in the 
relation of the citizen to the public purse. 

I. England. 

As in so many other domains of political science, England 
has here again taken the lead. The English are not much 
given to abstract reasoning in politics ; but in the practical 
working out of political ideals, England has usually led the 
way. In finance she has taken a similar lead. She was the 
first important nation to restrict the scope of taxes on con- 
sumption and to introduce the income tax ; and at the pre- 
sent time, while scientists the world over are debating the 
problem of lessening the burdens on the lower and middle 
classes, she boldly takes steps which in many other countries 
would, to say the least, be deemed premature. The three 
great reforms just accomplished in England are the extension 
of the inheritance tax, the introduction of the progressive 
principle, and the increase of the minimum of subsistence. 
Let us discuss these in turn. 

The principle of the inheritance tax is not new in Eng- 
land ; but its application has hitherto been very unsatis- 
factory. What are generally called the death duties were 
until the recent change composed of the following elements : 
(1) probate duty, a tax of about three per cent on personal 
property passing by will or intestacy ; (2) account duty, a 
similar tax on gifts of personalty ; (3) legacy duty, prac- 
tically a tax on collateral successions to personalty, graded 
according to relationship ; (4) succession duty, as altered 
in 1888, a tax on realty, settled personalty and leaseholds, 
with higher rates for collaterals than for lineals ; (5) estate 
duty, an additional tax, since 1889, of one per cent on all 
estates, real and personal, over £10,000. These five taxes 
really consisted of two classes : the one, represented by the 
probate duty, being a tax on the total amount of the prop- 
erty, irrespective of the manner in which it was divided, or 
of the persons to whom it went ; the other, represented by 

I 1 



f ' 









the legacy and succession duties, being a tax not on the 
body of the estate, but on the separate shares received by 
collaterals and outsiders. These five taxes constituted a 
complex whole, bristling with anomalies and inequalities, 
of which the most important was the distinction made 
between realty and personalty, the latter not only being 
taxed more heavily, but being subject to more complicated 
and burdensome rules. The act of 1894^ endeavors to 
remove these inequalities by imposing, in lieu of most of the 
previously existing taxes, a new estate duty. 

This estate duty is a tax on the capital value of all 
property, real or personal, which passes on the death of any 
person. The taxes abolished are the probate duty, the 
account duty, the estate duty of 1889, the succession duty 
on lineals and the additional succession duty of 1888, all 
of which merged into the new estate duty. The only old 
duties which continue are, as we shall explain in a moment, 
the legacy duty and, in certain cases, the succession duty. 

Under the former system personal property was rated at 
its capital value, but realty was estimated at a fictitious sum 
according to the annual value and the varying degrees of 
interest in the property. In some cases the tax was charged 
only on the value of a life interest in the property ; and 
where there was no annual value, as in the case of lands 
held for speculation, there was no tax at all. All these 
differences are removed by the new tax, which is levied on 
the market value of the property. In the same way the tax 
on realty could formerly be paid in instalments, while that 
on personalty was paid in a lump sum ; but now, in order to 
equalize the taxes, interest is charged on the amounts remain- 
ing due until the final instalment is paid. Again, whereas 
formerly the instalments payable on realty lapsed with the 
death of the person primarily liable, they are now a charge 

1 The Finance Act, 1894, 57 and 58 Vict. ch. 30. Cf. A. T. Layton, Tht 
Finance Act, 1894, in relation to the New Estate Duties, with introduction 
and explanation. See also Table of Income Tax imposed by the Finance Act, 
1894, with full text of act relating to Income Tax and notes of explanation. 



on the estate and cannot be avoided. Finally, the tax applies 
to all death-bed gifts, which are defined to comprise any gift 
of realty or personalty made within twelve months of death. 

It is somewhat confusing to find side by side with this 
estate duty a so-called settlement estate duty ; but the ex- 
planation is simple. It is a common practice in England 
to tie up property by means of settlements, so that the bene- 
ficiary is not at liberty to dispose of the property itself, but 
enjoys only some interest in it, whether for life or for a term 
of years. It is readily perceived that, if each beneficiary 
were called upon to pay the tax on the total value of the 
estate, an injustice would result, especially if there should 
be more than one devolution under the same settlement. It 
is therefore provided in the new law that the estate duty 
shall be payable only once on the value of the property, 
which shall then be exempt from further payment during the 
continuance of the settlement. In consideration of this ex- 
emption and in order to obviate in part any diminution in 
the total yield, an additional tax of one per cent, called the 
settlement estate duty, is imposed on the principal value of 
the property so settled. An exception is made in the case 
of husbands and wives ; and it is further provided that the 
additional duty shall not be payable more than once during 
the continuance of the settlement. 

Another point worth mention involves the question of 
double taxation. In the original draft it was proposed to tax 
the property, wherever situated, of a person domiciled in 
Great Britain. It was pointed out, however, that this might 
involve double taxation where the foreign country itself im- 
posed an inheritance tax on the property lying within its 
borders. The bill was, therefore, amended so as to permit 
the amount of the foreign tax to be deducted from the sum 
payable by the estate in England. This is a simple solution 
of the question. It may also be added that the tax does not 
apply to property left to the central or local governments, to 
universities, to certain pensions, or to single annuities not 
exceeding £25. 




' A\ 

( » 





) I 

The most significant feature of the new estate duty is 
the final acceptance of the graduated scale or the system of 
progressive taxation. Under the preceding laws there was 
indeed an exemption for very small sums ; but that did not 
mean progressive taxation proper. In the present law the 
tax begins with a rate of one per cent and increases in 
twelve successive stages until it reaches eight per cent. 
Estates under £100 are not taxed at all ; from £100 to £500 
the rate is one per cent, but so arranged that estates under 
£300 make a fixed payment of 30«., while estates between 
£300 and £500 are charged a fixed sum of 50«. Obvi- 
ously the rate is more than one per cent on the lower figures 
of each class. Above £500 the rate increases until the 
maximum rate is reached at estates over one million pounds.^ 
Even these figures do not adequately represent the real 
charge ; for it must be remembered that, in addition to this 
new estate duty, there still exist a legacy duty and a 
succession duty. The legacy duty is a tax at the rate of 
three, five, six and ten per cent, graded according to 
relationship on personal property going to collaterals. The 
succession duty as changed by the new law' is a similar 

^ The exact figures are : — > 

Over £100 to £600 1% 

♦* 500 •• 1.000 2% 

" 1,000 *♦ 10,000 3% 

*« 10,000 »• 25,000 4% 

•« 25,000 •• 50,000 4i% 

" 50,000 •* 75,000 5% 

•• 75,000 •• 100,000 5J% 

•• 100,000 ** 150,000 6% 

•• 150,000 •• 250,000 6^% 

" 250,000 «• 500,000 7% 

«• 500,000 « 1,000,000 7J% 

»* 1,000,000 8% 

* Under the original law, the rates were as follows : — 

Lineal issue and ancestors 1% 

Brothers and sisters and their descendants .... 3% 

Uncles and aunts 5% 

Great uncles and aunts 6% 

Other persons 10% 

tax applicable to realty. The two duties together form 
a collateral inheritance tax, which must be paid in ad- 
dition to the estate duty, with the important exception 
that estates not exceeding £1000 are subject only to the 
latter. The net result is that the rate of inheritance tax 
varies from one to eighteen per cent of the value of the 

These are remarkable figures, considerably exceeding those 
to be found until recently in any other important country.^ 
When almost one-fifth of the property is taken by the state, 
as is the case with large fortunes going to outsiders, we 
are approaching Bentham's principle of escheat. Com- 
pared to the paltry amounts levied before 1898 by inheri- 
tance taxes in America, the English figures are certainly 
striking. The introduction of the progressive principle was 
indeed hotly opposed, and the familiar cry of socialism was 
again raised, but all in vain; for the Chancellor of the 
Exchequer regarded the principle of progression as firmly 
established by the weight of recent economic authority. 
He even went so far as to say that it was equally appli- 
cable in principle to the income tax, and that the sole 
reason for his not introducing it there was of an adminis- 
trative nature.2 The definite acceptance of the progressive 

But as lineal issue and ancestors were exempted when the property paid 
probate duty, so the exemption now continues, since the new estate duty 
replaces the old probate duty. The succession duty was levied at a higher 
rate, and under different conditions ; but it is now exactly the same as the 
legacy duty. They are maintained as separate duties simply because of the 
body of legal decisions that has grown around them. 

1 In some of the Australian colonies the rates are slightly higher. In 
Victoria estates of £100,000 pay ten per cent direct tax ; and in Queensland 
the highest rate for collaterals is twenty per cent. The Swiss canton of Uri 

■ goes even higher. For the new American tax, see above, p. 135. 

2 In answer to the question why the income tax should not be graduated, 
he replied : "In principle there is nothing to be said against such a system ; 
indeed there is every argument in its favor. The difficulties which lie in its 
way are of an administrative and a practical nature, which as yet I have 
not been able to find means to overcome." — Budget Speech, April 16, 1894, 
Hansard, p. 502. The argument is similar to that contained in my work on 
Frogreasive Taxation, p. 208. 


> S I 






1 1)1 




principle in English politics marks a most important step 
in the history of public finance.^ 

Side by side with this extension of the principle of ability 
to pay, went its enlargement in another direction. Under 
the inheritance tax the large amounts have to pay increased 
rates; in the income tax, where this was deemed imprac- 
ticable, a somewhat similar result was reached by mak- 
ing the smaller amounts pay decreased rates. As a result 
of successive changes, the tax had been so arranged that 
incomes below £150 were entirely exempt, while incomes 
between X150 and <£400 received an abatement of £120. 
Under the new law the desire to ease the burdens on the lower 
classes has resulted not only in an increase of the total 
exemption, but in an addition to the abatements and in 
an enlargement of the classes to which abatement is accorded. 
The limit of total exemption is now fixed at X160 ; incomes 
between X160 and £400 receive an abatement of £160; 
while incomes between £400 and £500 are permitted to 
deduct £100. To use technical language, while the pro- 
gressive principle is introduced in the inheritance tax, the 
degressive principle is extended in the income tax. Both 
are manifestations of the idea of graduation, according to 
the doctrine of faculty in taxation. 

One other change deserves mention. The landowners 
made a strenuous opposition to the equalization of the 
"death duties," maintaining that real estate already paid 
more than its share in the shape of local rates. To this 
objection two arguments were opposed. In the first place 
it was by no means proved that the weight of the local 
taxes rests on the landowners. Not only are the taxes 
levied on the occupier, so that the incidence is only partly, 
if at all, on the owner ; but the landowner is largely 
exempt from what are known in America as special assess- 
ments. Secondly, it was contended that there would be 

1 The fear that the new tax portends a breaking up of the large landed 
estates seems to be groundless. The lawyers are already devising schemes of 
settlement which will, in part at least, nullify the law. 

a better prospect of securing an equitable system of taxation 
if each tax were made just in itself, without regard to the 
others. Yet attention was so far paid to the cry raised 
by the landowners as to lead the government to diminish 
the burden of the income tax resting on them. It had 
long been a complaint that real estate was assessed in 
schedule A at its gross income, not at its net income, thus 
not permitting deductions for repairs. Under the new act 
the assessment may be reduced by one-eighth in the case 
of farms, and by one-sixth in the case of other buildings. 
This is at once a substantial concession to the landowners, 
and a decided improvement in the theory of the tax itself. 
But the change in schedule A and the great extension of the 
exemption and abatements promised so materially to diminish 
the yield that it was deemed necessary to increase the rate 
from sevenpence in the pound, or less than three per cent, 
at which it had stood some time, to eightpence, or three and 
one-third per cent. 

Finally, attention must be called to the provisions affecting 
the relation between local and national revenues. For some 
time there has been growing dissatisfaction with the sys- 
tem of local taxation. During the eighties an attempt was 
made to remove this in part by the device of grants-in-aid, 
or subsidies from the general government to the local bodies. 
In 1888, Mr. Goschen altered the arrangement by allotting 
to the local bodies a certain percentage of the probate duty. 
The new law virtually maintains this arrangement by appro- 
priating out of the new estate duty to the reduction of local 
taxation a sum of one and one-half per cent on the net value 
of the property which, but for the substitution of estate 
duty, would have been chargeable with probate duty. Sir 
William Harcourt made no attempt, however, to reconsider 
the whole question of the relation between general and local 
taxes, but expressly left it open for future discussion. 
Further consideration of this point — perhaps the only im- 
portant point in which the English system is still defective 
— cannot much longer be delayed. 



I '■ 

^'^■' ' ■iaiyi., 








It may be interesting to note the probable financial results 
of these measures. While the income tax at the old figures 
was estimated to produce £15,200,000, the increase of rate 
is almost counterbalanced by the changes above alluded to. 
On the other hand, whereas the '* death duties " have been 
yielding about £10,000,000, the new system is expected to 
increase the yield to .£13,500,000 ; but as £2,500,000 will 
go to the reduction of local taxation, the net increase to the 
imperial treasury, especially in the first year, will be only 
about one million. The new measures, therefore, are in- 
tended not so much to produce more revenue as to introduce 
more justice and to equalize the burdens on the various 
classes of taxpayers. 

The new budget thus marks a turning-point in English 
finance, and has already proved itself very popular.^ To have 
swept away the anomalies of a great system of taxation, to 
have definitely introduced the principle of progression, to 
have removed inequalities in the income tax, and to have 
greatly increased the minimum of exemption, — these are 
achievements on which any finance minister might pride him- 
self. The name of Sir William Harcourt, it may safely be 
afi&rmed, will hereafter be indissolubly linked in the annals 
of British finance with those of Peel and Gladstone. 

II. New Zealand. 

While England was battling with these problems, a similar 
movement was going on at the antipodes. In New Zealand, 
as in all early communities, the original source of revenue 
was the general property tax. But this, having obviously 
become unsuitable to modern conditions, has been modified 
in several directions. The three recent important changes 
are the enactment of the income tax, the adoption of the sys- 
tem of graduation, and the exemption of improvements from 
the land tax. 

1 The issues in the electoral campaign of 1895 did not torn on the budget. 
Both parties are committed to the income tax, to the ^' death duties,** to the 
principle of graduation, and to the reform of local taxation. 

The first step in the movement was the passage of " The 
Land and Income Assessment" act of 1891,i ^hich replaced 
the previous "Property Assessment" act. The income tax 
and the land tax were really distinct measures, although 
they were generally coupled together, and were dealt with 
in various sections of the same act ; but, although dis- 
tinct, they were complementary. In framing a scheme of 
income taxation, three possible methods may be followed. 
We may attempt to reach the income as a whole, from all 
sources, and have a general income tax ; or we may separate 
the sources of income and levy a distinct tax on each, as 
% on land incomes, on business incomes, on professional 
incomes, and so forth ; or, thirdly, since the yield of land 
everywhere forms so important a share of national income, 
we may split the tax into only two parts, one of wluch 
endeavors to hit the income from land, while the second is 
intended to reach all the other forms of income. Since the 
selling value of real estate, in modern communities where 
land is continually bought and sold, is approximately the 
capitalized value of the income, it makes little difference 
whether we assess the land on its income value or on its 
property value. New Zealand, following the example of some 
of the Swiss commonwealths, adopted this third method; 
that is. New Zealand endeavored substantially to reach the 
entire income by levying a land tax on the capitalized income 
from land, and by assessing the income from aU other sources 
through the so-called income tax.^ ^ 

The income tax is levied on corporations (or " companies ) 
and individuals. The former are taxed on their net income, 
but the security holders are then exempt. In most cases 

1 An act to regulate the assessment of land and income for the purposes 

of taxation. Sept. 8, 1891. :««:«i« ;„ 

« The colony of Victoria has very recenay followed the other pnnciple m 
leyying a general income tax. By " the Act to impose a Tax on Incomes, 
Jan 29, 1896, incomes below £200 are free ; on incomes from personal exer- 
tion, the rate is fourpence per pound up to £1200, sixpence per pound up to 
£2200, and eightpence per pound on larger amounts; on mcomes from the 
produce of property within Victoria the rates are exactly double. 





t> I 





profits from mortgages are not included in income, because 
mortgages are treated as interests in land and are accord- 
ingly subject to the land tax.^ 

Individuals are assessed on their income derived either 
from business, or from employments or emoluments. This 
last category is very broad, including profits from "the 
exercise of any profession, employment, or vocation of any 
kind, or from any salary, wages, allowances, pension, stipend, 
or charge or annuity of any kind not charged on land.* 
In order to prevent double taxation, however, it is provided 
that when any business or other income is derived from land, 
a sum equal to five per cent on the value of the land assess- 
ment may be deducted from the taxable income. Not only 
private corporations, but all local authorities and individ- 
ual employers, are required to furnish full lists and salaries 
of persons employed by them. The income tax is paya- 
ble only on the excess over X300, and certain minor deduc- 
tions are allowed. The rate is fixed by periodical acts, 
according to the needs of the colony ; in 1893 ^ it was 
fixed at a shilling in the pound, or five per cent. In 
the case of private individuals, incomes from £300 to 
£1000 are charged two and one-half per cent, while the full 
rate is assessed only on the excess above XI 000 ; in the 
case of corporations the rate is uniformly five per cent. The 
£300 exemption is accorded only to persons domiciled or 
permanently resident in the colony. 

The second half of the general scheme of taxation is the 
land tax. An important and valuable feature of the law 
is the treatment of mortgages, which are regarded for the 
purposes of taxation as real estate. The landowner is taxed 
on the value of the land, less the amount of the mortgage 
which is required to be registered; and the mortgagee is 
taxed on the value of the mortgage. Land under £500 in 

1 But under a recent amendment, banking, loan, building and investment 
companies must include in their return of income the income from mortgages, 
and are liable for income tax, not for land tax. Cf. the Land and Income 
Assessment Act Amendment Act, Oct. 2, 1893. 

2 An Act to impose a Land Tax and an Income Tax, Oct. 6, 1893. 

value is exempt, and accordingly the exemption is accorded 
to mortgages of the same amount. The mortgage, however, 
is assessed to the mortgagee at its actual value — a provision 
of importance when the value of the security does not equal 
the mortgage debt. The result is that the government gets 
its tax on the whole value of the land, that there is no double 
taxation on the mortgagor, and that the mortgagee or owner 
of personal property loaned on the land must bear his due 
share of taxation. The law does not attempt to consider the 
ultimate incidence of the tax ; but so far as it goes, it is 
constructed on scientific principles. The provisions apply, 
as pointed out above, to corporations as well as to individ- 
uals, with the exception of banking and loan associations. 

An interesting section is that dealing with the tax on 
improvements, which are defined to include "houses and 
buildings, fencing, planting, draining of land, clearing from 
timber, scrub, or fern, laying down in grass or pasture, and 
any other improvements whatsoever, the benefit of which is 
unexhausted at the time of valuation." In the original law 
such improvements were exempted up to the value of £3000; 
but under the amendment of 1893 the exemption is extended 
to the value of all improvements, of whatever amount, the 
tax now being levied only on the bare value of the land. 
The significance of this change will be estimated in a moment. 
The most important feature of the new legislation is the 
adoption of the progressive system. The Australasian colo- 
nies have been growing restless under the gradual aggrega- 
tion of land into the hands of a few proprietors, and some of 
them have attempted to check the process by a system of pro- 
gressive inheritance taxes, like that just introduced into Eng- 
land. In New Zealand, however, where most of the large 
fortunes have hitherto been due to dealings in land, it was 
thought that the same result might be reached by a progres- 
sive tax on living landholders, instead of on the estates of 
deceased property owners. Accordingly in 1891, a gradu- 
ated tax was imposed in addition to the ordinary land tax. 
The latter was fixed at one penny in the pound, while the 











additional graduated tax began at an eighth of a penny and 
rose to a penny and six eighths. In 1893, however, the rate 
of progression was still further increased, in order to obviate 
any diminution of revenue which might result from the com- 
plete exemption of all improvements. Accordingly, at pres- 
ent the additional tax varies from one eighth of a penny to 
twopence in the pound, with the result that the largest 
estates now pay a total land tax of threepence in the 
pound. ^ But the tax is even larger than would appear from 
these figures, because of the provision that in the case 
of the graduated tax the value of the mortgage cannot 
be deducted from the value of the land. Deduction is per- 
mitted only in the ordinary land tax, or in the case of 
estates under X5000 in value. On the other hand, the 
mortgage itself is never liable to the graduated tax. We 
thus have for the first time in any English-speaking country 
a graduated scale in a direct property tax. England and 
her colonies lead the way not only in progressive inheritance 
taxes, but also in progressive property taxes. The drift is 

It might be thought by some that the adoption of this 
progressive land tax implies a process of confiscation by the 
government. In order to preclude all possibility of such an 
interpretation, the New Zealand law has inserted an ingen- 

one-eighth of a penny, 
two-eighths of a penny, 
three-eighths of a penny, 
four-eighths of a penny, 
five-eighths of a penny, 
six-eighths of a penny, 
seven-eighths of a penny, 
one penny. 

one penny and one-eighth, 
one penny and two-eighths, 
one penny and three-eighths, 
one penny and four-eighths, 
one penny and five-eighths, 
one penny and six-eighths, 
one penny and seven-eighths. 
two pence. 


rhe scale 

as amended is as 

follows: — 

When the value is 

£5,000 and less than 




• < 















































• ( 







































210,000 or exceeds that 


ious clause, which reminds us in some respects of the hvnlwnt 
in ancient Athens. If a man thought that he had been as- 
sessed too high for the extraordinary property tax or liturgy, 
as compared with a neighbor who had been passed over, he 
could call upon the latter to assume the tax; and in case ot 
the neighbor's refusal, he could demand an "exchange of prop- 
erty," out of the proceeds of which the tax was defrayed. In 
New Zealand the government takes the place of the third 
party. In other words, if a taxpayer thinks that he is assessed 
too high, he can call upon the government to purchase his land 
at his own original valuation ; he has the alternative to pay 
the tax at the official valuation or to sell the land at his own 
valuation. It is readily seen that in this way no property 
can be confiscated. On the other hand, the government in 
its turn may purchase the land at the assessed valuation 
plus ten per cent additional, in case the owner will not con- 
sent to the official valuation. As a matter of fact, advan- 
tage has akeady been taken of the provision in the case of 
the so-caUed Cheviot estate, of over 84,000 acres, which was 
returned by the owners in 1892 at ^£260,220, but which was 
assessed by the government at X304,826. The government 
refused to reduce the assessment, and the owners caUed on 
the government to purchase the property. This was done m 
1893, and the government is now proceeding to carve it up 
into small plots and gradually to dispose of it. The colonial 
treasurer states that the revenue will give a handsome return 

on the purchase money.* 

It remains to estimate the meaning of the exemption of im- 
provements. The American newspapers have been filled with 
accounts of the introduction of the single tax in New Zealand, 
and the enthusiastic followers of Henry George have been jubi- 
lant. But when the law and the official reports are carefully 
scrutinized, the enthusiasm seems to be somewhat misplaced. 

There can indeed be little doubt that Mr. George's views 
exerted some influence in the enactment of the law ; but it 

1 i?inonct-oi SUMsmtnt in Committee of Supply by the Colonial Treasurer, 
1893, p. 19, WeUington, 1893. 

»,■ )■ 




must be remembered that the provisions of the law may be 
explained without any reference to those particular views. 
In young and rapidly growing communities, concessions are 
frequently made which would be out of place amid more 
settled industrial conditions. Thus the social effects of tax- 
ation or of the remission of taxation are clearly recognized 
in the laws of some American states, which exempt from 
assessment for a limited period new industrial enterprises, 
timber lands and various kinds of improvements on land. 
There is in such cases no implication that the owners of 
these establishments or forests or improvements are free 
from fiscal obligations toward the state ; for to the extent 
that they have property or income, they also are ultimately 
liable. But it is deemed so desirable to foster these new 
forms of enterprise that the community as a whole is willing 
to bear the additional temporary burden in order to realize 
more permanent benefits. The government of New Zealand 
stated at the tune the bill was introduced that their object 
was to induce large landowners to improve their lands, 
and thus to bring about an increased national production.^ 
Looked at from this point of view, there is much to be said for 
the provision, which, however, does not mean that the small 
farmer will be as much benefited as some might imagine. 
The latest ofl&cial assessments show that, whereas in the 
country districts or counties the unimproved value of the 
lands exceeds the value of the improvements, the reverse is 
true in the towns or boroughs. The figures for 1893 are as 
follows : 2 — 

Actual Valtte. 

Counties £85,818,167 

Boroughs 36,406,862 

Totals .... £122,226,029 

Valdk or 








1 "It will be admitted that the repeal of the tax on improvements should 
have the effect of encouraging the owners of large properties to expend money 
in improving their land, and thereby add to its productiveness. This would 
be a direct advantage to the colony as a whole, both by causing an expendi- 
ture on labor, and by adding to the products." — i?Ynancta2 Statement in 
CommiUee of Supply/, 1893, p. 18. 

« New Zealand Official Tear Book, 1893, by E. J. von Dadelszen, p. 429. 



That is to say, in the boroughs the improvements are 
worth actually more than the bare land, while in the country 
districts the land is worth more than twice as much as the 

The claim of Mr. George that the small farmer will bene- 
fit at the expense of the city lot-owner is therefore disproved 
in New Zealand as it has been in other parts of the world. ^ 
The figures show that it was not so much the object of the 
law to discourage the urban landowner as to reach the large 
rural proprietors. As between the small farmer and the 
city landowner, the law is distinctly unfavorable to the 
former, for the exemption of improvements removes over 
one-half of the townsman's tax, but less than one-third of 
the farmer's tax ; that is, it relatively increases the tax of the 
farmer. Were the land to be owned by small farmers, the 
system would be unendurable ; but it is precisely because 
the land is not owned by small farmers that the law was en- 
acted. The exemption of improvements was a corollary of 
the graduated tax on land. When any part of the improve- 
ments was exempt, the tax was graduated ; and when the 
exemption was made complete, the scale of graduation was 

The claim that the new law means the introduction of the 
single tax is still further weakened by the fact that it 
went hand in hand with the extension of the income tax on 
other sources than on land. Finally, the contention that 
there is any single tax at all in New Zealand is rendered 
absurd by the fact that in 1894 the revenues from the land 
amounted to X 285,000 out of a total revenue of over four 
and a quarter millions, the larger part of which was derived 
from indirect taxes. In other words, the " single" tax yields 
about six and a half per cent of the colonial revenues, and 
of course, when we take into account the local revenues, 
composed chiefly of the general property tax, a much smaller 
proportion of the total income. The reader is thus in a 
position to judge how much foundation there is for the state- 

1 Supra^ pp. 86-90, 











ment that the recent prosperity of New Zealand is to be 
ascribed to the "single" tax. The real intent of the new 
legislation is to make the large property owners pay more 
than they have hitherto been paying, and to subject to taxa- 
tion other classes that have hitherto been exempt.^ It is 
thus an attempt to realize the principle of faculty in taxation. 

III. Holland, 

In the review of the tax reforms in England and New 
Zealand we have seen that the changes were largely the out- 
growth of popular agitation; in the states now to be dis- 
cussed the reforms were more directly the result of scientific 
discussion. This is especially true of the Netherlands, where 
all the recent tax laws are due to N. G. Pierson, the author 
of the ablest Dutch treatise on economics and finance. Mr. 
Pierson was at one time a university professor, and was for 
many years the president of the Bank of the Netherlands. 
For several decades he had been devoting himself to the 
consideration of fiscal problems, and when in 1891 he was 
made Minister of Finance, he immediately set about the 
task of bringing the tax system more into accord with 
the demands of modern theory. In his budget for 1892 
he sounded the keynote of the new programme — a more 
equitable distribution of the burden of taxation — claiming 
that the poorer classes were taxed too much, and the 
wealthy too little. The problem was, how to bring about 
an equilibrium. 

The Dutch revenue system was composed in large part of 
indirect taxes. Import duties, it is true, were very light, 
but the internal revenue or excise taxes were still burden- 
some. The direct taxes comprised, as in France and some 
other countries, a land tax, a business tax, and a " personal 
tax " calculated according to house rent. The business tax 

1 " The end sought to be attained by the whole scheme is to compel contri- 
bntion to the requirements of the state according to the ability of those who 
are called upon to contribute thereto." " Statement by the Commissioner 
of Taxes in New Zealand," N. Z. Official Year Book for 1894, p. 44. 

had grown to be very unequal, being based on rough out- 
ward signs; and the personal tax, which took the same 
proportion from large and small rentals, proved to be a 
serious drain on the poorer classes. Whole sections of the 
population, moreover, were virtually exempt. Mr. Pierson 
therefore proposed a fourfold reform : — 

(1) The abolition or decrease of the more vexatious excise 
duties; (2) the enlargement of the business tax into a gen- 
eral income tax; (3) the reconstruction of the personal tax 
through the introduction of a progressive scale and through 
other changes; (4) a reform of local taxation so that the local 
and general taxes together might form a harmonious whole. 
Of these reforms only the first two were accomplished, when 
the ministry was overthrown on an entirely different point. 
Yet even these partial reforms represent a distinct step in 
advance and deserve our attention.^ 

The first step was the reduction in the excise duties. 
In 1892 the excise on soap was abolished, and that on salt 
was reduced from nine to three florins per hundred kilo- 
grammes. The vexatious registration duty on the transfer 
of land was lowered from 6.27 to 2.15 per cent, or in the 
case of a second transfer within the same year from 1.09 to 
0.40 per cent. With the exception of a minor tax on meat, 
there were then left only the duties on spirits and on sugar, 
which were retained as in other countries as essential features 
of every tax system. This reform in itself proved to be a 
distinct relief to the poorer classes. 

Of more importance were the changes made in the direct 
taxes. The business tax, akin to the French patentee, had be- 
come in many ways inadequate and unjust, and was now to 
be replaced by a tax on the actual, rather than on the assumed 
income and was furthermore to be extended so as to reach in- 
come from other sources than from business. Pierson deemed it 

1 The best account of the recent changes, of the discussion in Parliament 
and of the previous attempts at tax reform, will be found in an elaborate 
article by G. M. Boissevain, " Die neueste Steuerreform in den Nieder- 
landen," in Finanz-ArcUv, vol. xi.,pp. 419-746. This also contains the text 
of the laws themselves. 

» I 





wise to separate this tax into two parts, one of which should 
apply to the income from property alone, while the other should 
include all other incomes. In the first case, however, it was 
thought best to make the tax in large part one on the property 
itself, rather than on the income from property. The earlier 
law thus provided for what is termed the property tax.^ 

The question that immediately presents itself is: Why 
should there be a separate property tax ? The answer is : 
Largely for administrative purposes. The administration 
of the tax would thereby be put into the hands of officials 
already familiar with the land and inheritance taxes, while 
the income tax would naturally fall to the officials acquainted 
with the business tax ; secondly, the local authorities might 
desire to add a percentage to the property tax rather than to 
the income tax ; thirdly, it would be the most convenient 
method of providing for a different or higher taxation of 
income derived from property than of income derived from 
labor. In addition to these points the rather doubtful argu- 
ment was advanced that the same amount of capital affords 
different rates of income according to the varying security 
of the principal, and that the poor man who cannot afford 
to make much of a choice generally prefers securities with 
higher rates of interest ; to tax income instead of capital 
would thus be to favor the rich man. Finally, in answer to 
the objection that a non-dividend-yielding security would also 
be taxed, it was urged that this could not be avoided even 
under an income tax ; for if the capital value of a security 
should fall in any one year more than the amount of the 
interest or of the ordinary dividend, the income tax would 
be paid not from income, but from capital. 

Dubious as some of these reasons were, they found favor 
with Parliament. Even in the property tax, however, the 
principle of income was not wholly abandoned ; for in the case 
of real estate the capital value is fixed at twenty times the 
annual revenue, unless the owner elects to be assessed ac- 
cording to selling value. It may be said in passing that the 

1 Act of Sept 27, 1892. 



property tax applies only to individuals, not to corporations ; 
and that furniture, objects of art, scientific apparatus, life 
insurance policies and a few other categories^ are not included 
in taxable property. 

A point of considerable importance is that the old land tax 
is levied in addition to the property tax. The landowners 
had for many years blocked the way to any change in the 
system by asserting that to tax their land by the land tax 
and again by the property tax would involve gross double 
taxation. Mr. Pierson, however, had long ago espoused the 
capitalization theory of the land tax, and had maintained that 
an exclusive tax on land becomes a kind of rent-charge, de- 
pressing the selling value of the land by a sum equal to the 
capitalization of the tax. The new purchaser, he argued, 
makes an allowance for the tax in the purchase price, and buys 
to that extent an exemption from future taxation. Since, 
therefore, all other owners of property were to be taxed 
for the first time, it would be unjust to exempt the land- 
owners from the property tax. The land tax is a rent- 
charge ; the property tax is a real tax. The situation was 
deemed to be the same as in England, where the land tax 
exists side by side with the income tax on land. 

Were this chapter anything more than a bare summary 
of recent legislation, it might be shown that there was a 
partial fallacy in Mr. Pierson's reasoning. For the theory of 
amortization, as it is called, holds good only on the assump- 
tion that the land tax is exclusive ; ^ yet, as a matter of 
fact, even under the old Dutch system, there was also a tax 
on business or business property. Be that as it may, Mr. 
Pierson's argument prevailed ; but several concessions were 
made to the landed interest. The rate of the land tax was 
reduced from seven to six per cent ; the transfer duties on 

^ Such as articles of food ; the right to pensions or annuities ; property of 
which the usufruct is enjoyed by some one else ; debts, wages and other 
income which is yet due. 

^ For a fuller statement of the amortization theory, including a reference 
to Pierson^s earlier scientific Tiews, see my work On tAe Shifting and Inci- 
dence of Taxation^ pp. 62-62. 





land were abolished ; the official assessment of land for the 
property tax was purposely kept somewhat below the actual 
value ; and land used for agriculture, by a legal fiction to be 
stated in a moment, was exempted from the income tax. In 
these several ways it was sought to remove the imputation of 
double taxation. It may be questioned, however, whether 
this object was entirely attained. 

The fundamental feature of the new system is the co-ordi- 
nation of the property tax with a complementary income 
tax, for the purpose of reaching through a combination of 
the rates the entire taxable faculty of the individual. The 
official name of the income tax is "tax on income from occu- 
pations and other incomes," ^ although it is generally called 
the business tax. The tax is levied on all " gains and wages," 
which are defined to include "the amount of all net revenues 
from business, trade, manual labor, occupation or enterprise 
from temporary work or activity of any kind, from con- 
tractual or non-contractual profits, whether in cash or in 
securities." The law applies to corporations as well as to 
individuals, while the property tax applies only to individ- 
uals ; but if the corporation pays the income tax, individual 
security holders are exempted. In order to obviate the 
double taxation which would result from taxing busi- 
ness capital through the property tax and business profits 
through the income tax, recourse is had to an expedient so 
familiar in Switzerland and also practised in Massachusetts. 
The property tax is presumed to reach an income of four per 
cent; hence the income tax is payable in almost all cases 
only on the surplus profits above four per cent. In this way 
the property and the income taxes together are deemed 
to reach the whole income.^ In the case of capital invested 
in land, the income is declared to be legally equivalent to 
four per cent. Agricultural capital is hence exempt from 
the income tax, as it had previously been free from the 

1 Belasting op bedrijfs- en andere inkomsten. Act of Oct. 2, 1893. 
a For a fuller discussion of this arrangement from the standpoint of theory, 
see supra^ p. 99 and pp. 216-218. 



business tax, although the land is liable to both the property 
and the land tax. 

In respect of the rate of taxation the new Dutch laws 
recognize the principle of differentiation as well as of pro- 
gression. To differentiate the rate by taxing incomes from 
property more heavily than incomes from labor was, as we 
know, one of the avowed reasons for the enactment of the 
two separate laws, and did not meet with much opposition. 
But when the project of graduating the tax was introduced, 
the discussion, as in all such cases, grouped itself about two 
main points. On the one hand the partisans of a strict propor- 
tional rate maintained that progression means socialism and 
confiscation ; on the other hand the extremists declared their 
belief in the socio-political theory of taxation, according to 
which progressive taxation should be utilized as an engine 
to remove inequalities in fortune. Pierson took the middle 
ground, declaring his opposition to both these theories and 
maintaining that a moderate progression was a logical conclu- 
sion from the theory of faculty in taxation. " Progressive taxa- 
tion," as he put it, "must never be a principle (as the socialists 
would have it), but only the application of a principle." 

The practical arrangement was as follows : Property under 
13,000 florins is entirely exempt ; from 13 to 14,000 the tax is 
fl. 2 ; from 14 to 15,000 it is fl. 4. If the property exceeds 
fl. 15,000 but is less than fl. 200,000, the tax is 1.25 per 
mm for the surplus over fl. 10,000. Property of fl. 200,000 
would therefore be taxed fl. 237 J. For every fl. 1000 
above fl. 200,000 there is an additional tax of fl. 2. In other 
words, there is a deduction in all cases for a certain part 
of the property (fl. 10,000) ; there is a complete exemption 
for a minimum of subsistence (fl. 13,000), and an abatement 
for a somewhat larger amount (fl. 15,000) ; and finally there 
is a slightly progressive rate. For if income on property 
is reckoned as four per cent, the property tax of 1.25 
per mill (on sums below fl. 200,000) equals an income tax 
of three and one-eighth per cent ; while a property tax of 
two per mill (on sums above fl. 200,000) equals an income 










I ^ 

( I 

tax of five per cent. Owing to the deduction of fl. 10,000 
as well as to the complete exemption of fl. 13,000 and the 
abatements for fl. 13,000 and fl. 14,000, the property tax 
computed as an income tax would vary from zero to almost 
five per cent. This will be seen from the following table : — 










































PBB Mill. 



OF iNOOm. 


In the income tax it was proposed to observe the same 
principle of graduation, but the rate was to be less. Since 
fl. 200,000 is equivalent to fl. 8000 income, the original plan 
was to tax incomes from labor above a certain minimum two 
per cent up to fl. 8000, and three and one-fifth per cent above 
that, instead of the three and one-eighth per cent and five 
per cent rates of the property tax. That is, incomes from 
labor were to be taxed three-eighths less than incomes from 
property. It was decided, however, to make the minimum 
of subsistence higher in the income tax than in the property 
tax, partly because of the existence of indirect taxes, partly 
for other reasons. The consequence was the necessity of 
two schedules in the income tax, one for incomes from labor 
alone, and one for taxpayers already subjected to the prop- 
erty tax. In the former case the tax is levied only on the 

surplus above fl. 650 ; but as the property tax is levied 
only on the surplus above fl. 10,000 (which corresponds to 
an income of fl. 400), the tax on incomes from property 
is levied on the surplus above fl. 250 (or the difference 
between fl. 650 and fl. 400). The higher rate, therefore, 
begins in this case not with fl. 8000 (as in the case of labor 
incomes), but with fl. 8200. This would result in the fol- 
lowing schedules, which, although seemingly complicated, are 
the results of simple computations : — 

• I 

SoiraDtrLB A. 

Incomes from Labor. 

Income. Tax (in florins). 

660 to 700 1 
700 '» 750 2 
760 »» 800 2.75 
800 *' 850 3.50 
850 '' 900 4.26 
900 " 960 5 
950 " 1000 6.76 
1000 " 1050 6.60 
1050 " 1100 7.26 
1100 " 1160 8 
1150 " 1200 8.75 
1200 " 1250 9.50 
1250 *' 1300 10.26 
1300 " 1360 11 
1350 " 1400 11.76 
1400 " 1460 12.60 
1450 " 1500 13.25 
1500 *' 1600 14 
1600 " 8200 14 + 

2 per cent on surplus 
over fl. 1500. 

Over fl. 8200, fl. 148 
-I- 3.20 per cent on sur- 
plus over fl. 8200. 

SCHEDULB B (for those liable also to the Property Tax). 
When Property amounts to When Property varies 

fl. 18,000 or fl. 14,000. between fl. 16,000 and fl. 200,000. 
Income. Tax (in florins). Income. Tax (in florins). 

250 to 























Over 1060 14 + 
2 florins for every hun- 
dred florins on surplus 
over fl. 1050. 

But if the income, to- 
gether with 4 per cent 
on the taxable property, 
exceeds fl. 8150, a tax 
of 1.20 per cent is pay- 
able on the excess. 

250 to 

300 »* 



































Over 1100 14 + 
2 florins for every hun- 
dred florins on surplus 
over fl. 1100. 

But if the income, to- 
gether with 4 per cent 
on the taxable property, 
exceeds fl. 8200, a tax 
of 1.20 per cent is pay- 
able on the excess. 
When property exceeds fl. 200,000, the tax ia 
3.20 on every hundred florins income over fl. 200. 










It may be said, in passing, that there are two additional 
schedules in the income tax ; corporations being taxed in all 
cases two and one-half per cent, and foreign travelling sales- 
men paying a fixed tax of fl. 15. Of the administrative 
features of the laws the chief point is that the returns both 
of property and of income rest on the principle of self- 
assessment, supplemented by careful official scrutiny. 

After the passage of these two acts Pierson prepared to 
undertake the reform of the personal tax and of the local 
revenue system. He had gone so far as to contemplate the 
introduction of the progressive scale into the tax on house 
rentals ; but before the bill could be discussed and before his 
wider plans for other changes were completed, he was com- 
pelled to resign for reasons entirely disconnected with these 

financial problems. 

The reform of the Dutch tax system is thus only partial; 
but enough has been accomplished to entitle Pierson to a 
high place in the ranks of fiscal reformers. The exaggerated 
burdens on the lower classes have been lessened, the tax on 
incomes has been generalized and equalized, and the princi- 
ples of progression and of differentiation have been intro- 
duced ; in short, there has been a notable step taken toward 
the realization of the doctrine of faculty. Although open to 
criticism in some of its details, the change represents undeni- 
able progress. 

rV. Prussia, 

While England, Holland and New Zealand have been 
occupied chiefly with the reform of general state taxation, 
Prussia has been fortunate enough to take one step further 
and to address herself to the solution of a problem which the 
reformers in other countries declare to be their next point of 
attack. The reform of local taxation, and the establishment 
of proper relations between the general and the local revenue 
systems constitute problems which to-day confront all coun- 
tries ; for no really harmonious system of taxation can ever 



be attained until the claims of conflicting or overlapping 
jurisdictions are satisfactorily adjusted. In federal states 
like Germany, Switzerland and the United States the matter 
is complicated by the demands of the central government ; 
but in all countries the fiscal relations between the state and 
the local spheres of government are more or less confused and 
unsatisfactory. The immense increase in local needs has 
everywhere so pushed this problem into the foreground that 
the solution just inaugurated in Prussia is a matter of far 
more than mere local importance. 

In order to understand the situation, it is necessary to 
dwell for a moment on the Prussian tax system. In Prussia, 
as well as in the other German states and in most of the 
remaining countries of the continent, the state system has 
been based on the principle of taxing product. The old 
general property tax long since disappeared and was re- 
placed by a system which attempted to reach the constituent 
elements of produce. Instead of taxing a man personally 
on his property, the plan was to tax the various sources 
of revenue themselves. The thing, and not the person, was 
primarily responsible ; and therefore the new taxes received 
the name of real taxes, as compared with the former per- 
sonal taxes. 1 These taxes on product (^Urtragsteuern) as they 
are called in Prussia, or real taxes (impSts rSels) as they are 
called in France, everywhere included taxes on the product 
of land, of buildings and of business. In addition to these, 
one or two other taxes are sometimes made use of, to round 
out the system. What was omitted in the three taxes above 
was the product of money lent at interest and the produce of 
labor. Some of the German states therefore, desii-ing to be logi- 
cal at aU costs, added a tax on interest (Kapitalrentensteuer} 
and a tax on wages (Lohn- und Besoldungsteuer). In most 
cases, however, the wages tax was omitted because the laborer 
already bore more than his share, and the tax on inter- 

1 This nomenclature must, of course, not be confused with that sometimes 
employed in America, where real taxes mean taxes on realty, and personal 
taxes denote taxes on personalty. 


' t 



est was replaced by a more general tax which endeavored in 
some way to reach the individual condition of the taxpayer. 
Thus in France shortly after the Revolution the " personal 
and movable" tax was introduced, which tried to reach a 
man's individual condition through his expenditures ;^ while 
in Prussia the three taxes mentioned above were supple- 
mented by a class tax, which was to reach the taxpayer in 
some rough proportion to his revenue. 

In the course of time, however, it came to be recognized 
that product was for many reasons too rough a test of 
faculty; and the tendency, recent evidence of which has 
been seen above, was to replace product by income. Thus, 
the class tax in Prussia was somewhat modified as early as 
1821 in the direction of an income tax, until after successive 
changes in 1851 and 1873 it became a complete general 
income tax in 1891. The land, house and business taxes 
were nevertheless retained. This mixture of taxes on 
product and on income was recognized as illogical, but 
was defended on the ground that the government could 
not yet dispense with the former. At the same time the 
business tax was radically reformed, so as to afford a far 
more accurate criterion of real business income. The re- 
form of the income tax and of the business tax, while exceed- 
ingly important, will be passed over here, partly because the 
laws were enacted several years ago and have been well treated 
as separate measures elsewhere,^ and partly because the 
principles involved are about the same as those alluded to 
in the reform of Dutch taxation. Above all, the real signifi- 

1 In France, it is true, there is an additional tax, ** the door and window 
tax." But all French writers confess that it is retained simply because of 
the difficulty of finding anything acceptable to take its place. 

* Cf. J. A. Hill, ♦♦ The Prussian Income Tax," Quarterly Journal of 
Economics, vi., p. 207, and an article on "The Prussian Business Tax," by 
the same writer, ibid, viii., p. 77. The most elaborate treatment of the sub- 
ject is to be found in two articles by Professor A. Wagner, " Die Reform 
der direkten Staatsbesteuerung in Preussen im Jahre 1891," Finam-ArchiVy 
viii., pp. 561-810, and xi., pp. 1-76. Cf. the articles by Jastrow, *♦ Studien 
zur preussischen Einkommensteuer," in Jahrbiicher fur Nationalokonomie 
und Statistiki Iviii., pp. 634, 839, and lix., p. 75. 



cance of the recent Prussian legislation lies in a different 
domain, and has not yet been discussed by any English or 

American writer. 

The Prussian legislator, in desiring to reform the whole tax 
system, was confronted by several tasks. In the first place, 
in order to realize the principle of the taxation of persons 
rather than of product, it was necessary to supplement the 
income tax by some other, so that their joint yield would 
render it possible to dispense with the taxes on product ; 
secondly, it was necessary, as in HoUand and elsewhere, to 
provide for a differentiation as well as for a progression of 
taxation ; thirdly, since local needs differ from general needs, 
a distinction had to be drawn between the sources of local 
and general revenue. Separate taxes thus had to be assigned 
to each sphere of government activity. 

Let us see how these several tasks were accomplished. 
Just as the English reforms were largely the work of Har- 
court, and as the Dutch reforms were due to Pierson, so in 
Prussia the chief credit must be given to the finance min- 
ister. Dr. Miquel, although he was here simply walking in 
the path cleared for him by the foremost economists.^ 

When the income-tax law of 1891 was discussed, the hope 
was expressed that its yield might be sufficient to enable the 
state to do away with the taxes on product ; for notwith- 
standing the labored arguments of some writers, the simulta- 
neous existence of income and of produce taxes was recognized 

1 The leading German articles on the topics are as follows: J. Jastrow, 
♦' Die Vermogensteuer und ihre Einftigung in das preussische Steuersystem," 
JaUrh'uchcr fur Nationalokonomie und Statistik, lix., p. 161 ; R. Friedberg, 
" Zur Reform der Gemeindebesteuerung in Preussen," ibid, pp. 321-341 ; F. 
Adickes, "Ueber die weitere Entwickelung des Gemeinde-Steuerwesens auf 
Grand des preussischen Kommunalabgabengesetzes vom 14 JuU, ^^^^/^ 
Zeitschrift fur die gesammte Staatswissenschaft, li., pp. 410-452, 583-6o8. 
The best treatment of the whole topic, including a history of the earlier sys- 
tem, a description of the government bUls, and the discussions in Parliament, 
as well as the text of the law itself with commentaries, is to be found m F. 
Adickes, Das Kommunalabgabengesetz vom 14 JuU 1893, fur den prak- 
tischen Gebrauch mit einer geschichtlichen Einleitung und Erlauterungen 
versehen, Berlin, 1894, Svo, 396 pp. 





.; \ 

" \i 



as illogical. Even though the principle of progression was 
applied to the income tax, it was thought that the yield 
would fall far short of the desired amount. Since an increase 
of the rate above the four per cent fixed in the law as a maxi- 
mum was impossible, an earnest effort was made to expand 
the existing collateral inheritance tax into a direct inheritance 
tax. This plan, however, came to naught ; and nothing re- 
mained, therefore, but to continue the old taxes on product. 

The agitation, nevertheless, went on and was helped along 
by what was conceded to be a defect in the income tax. 
Although the principle of progression had been introduced, 
no provision had been made for a differentiation of the rate. 
Income from labor was taxed at the same rate as income 
from property. Dr. Miquel therefore proposed to introduce 
a supplementary property tax, hoping in this way to achieve 
both of the desired results. Since this property tax, like all 
nominal property taxes, would really be paid out of the 
income of the property, it was thought that it would act as 
an additional tax on income in so far as the income was 
derived from property. Incomes from labor would pay only 
the income tax ; incomes from property would pay both 
income tax and property tax. Thus a practical differentia- 
tion would be introduced. This supplementary tax, more- 
over, would be levied on the property owner and would be a 
substantial addition to the personal taxes, rendering it pos- 
sible for the state to dispense with the taxes on product. 

This reasoning prevailed, and resulted in the enactment of 
the law of 1893, which was, however, not to go into force 
until April 1, 1895.^ The law provided for a "supplemen- 

1 Ergftnzungssteaergesetz von 14 Juli, 1893. The tax is arranged in classes 
fo that the one-half mill rate applies only to the lowest figures in each class. 

Property. Tax. 

Thus 6,000 to 8,000 marks pay 3 marks. 
10,000 to 12,000 " 6 " 

20,000 to 22,000 " 10 »♦ 

40,000 to 44,000 " 20 " 

60,000 to 70,000 " 30 " 
From 70,000 to 200,000 m. the tax increases 5 marks for each 10,000 m. 
Above 200,000 m. the tax increases 10 marks for each 20,000 m. 



tary tax " of five-tenths, or one-half of one, per mill, on all 
property. Exemption is granted to all property of less than 
6,000 marks; to all persons whose income does not exceed 
900 marks, provided their property does not exceed 20,000 
marks; and to women wage earners and minor orphans 
whose income does not exceed 1200 marks, and whose prop- 
erty does not exceed 20,000 marks. 

What is more important is the change that was now made 
possible in the local revenue system, and in its relation to the 
state system. 

The German local revenue system was exceedingly unsat- 
isfactory. In most of the towns indirect taxes on consump- 
tion played a considerable role ; in some places indirect 
taxes on transfers yielded a substantial sum. But so far 
as direct taxes are concerned, we find everywhere that the 
towns simply added a percentage to the state taxes, which 
in most cases would be taxes on product, like the land, 
house, business, interest, and wages taxes. Where state 
income taxes existed, a local percentage was also added, so 
that the amount of income taxes alone paid by a townsman 
often exceeded eight or ten per cent. Only in four towns, 
among them Berlin and Frankfort, were there any taxes on 
rentals. In order to present the facts clearly, the table on 
the following page is appended. In Prussia the matter was 
still further complicated by the so-called Lex Huene of 1885, 
which provided that a certain share of the imperial duties 
on agricultural products should go to the local divisions 
instead of to the state. 

The shortcomings of this whole system were so obvious 
and became so intolerable that Prussia boldly attempted to 
abolish them at one stroke. The fundamental principles 
that emerged in the discussion of the subject during the 
session 1892-93 may be summarized as follows. 

The relation of the individual to the local community is 
somewhat different from his relation to the state at large. 
The town is to a certain extent an association of business 
interests. While therefore the obligation of the citizen to 




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contribute to the general burdens should be regulated by 
the principle of faculty or ability, it is eminently proper that 
in the case of the local bodies more attention should be 
paid to the principle of benefits. In the local divisions, an 
extension should be given to the principle underlying what 
in the United States are called special assessments and 
fees. An argument of somewhat the same nature — a dis- 
cussion of its precise terms would carry us too far astray — 
led to the demand for the real estate tax as one of the chief 
sources of local revenue. A tax on real estate is a real 
tax, a tax on product; it is not a personal tax. Moreover, 
the real estate tax is an especially good local tax, partly 
because the benefits of local expenditure accrue primarily 
to real estate and thus increase the faculty of the owner; 
partly because making it a local tax would at once remove 
from the public arena the unseemly disputes about inequality 
of rates and about equalization, with which the public is 
scarcely less familiar abroad than in America. 

On the other hand, the income tax is unsuitable for a local 
tax, chiefly because amid modern complications income can- 
not well be localized. The sphere of local indirect taxes, 
also, should be restricted, because local taxes on con- 
sumption are apt to press with undue severity on the 
poorer classes. But since other classes, as well as real 
estate owners, share the duty of contributing to local bur- 
dens, the real estate tax should be supplemented by a busi- 
ness tax, in the shape of a real tax, rather than of a personal 
tax. Thus the conclusion is easily reached : personal taxes in 
the shape of an income tax and of a supplementary property 
tax for the state government ; real taxes, like the land 
tax, the house tax and the business taxes for the local bodies. 
If we join to this a diminution in the local indirect taxes, 
and an increase of special assessments and of fees, we shall 
have a system which is logically defensible and practically 


In accordance with these ideas were passed the three great 
laws of July 14, 1893. The first law, which has already 





1 1' 



been mentioned, provided for the supplementary property 
tax. The second law ^ abolished as sources of state revenue 
the real taxes — that is, the land tax, the house tax, the 
business tax and the old tax on mines, the first three being 
handed over to the communes or local bodies, and some minor 
changes being made in the business tax with the same end 
in view. This law, like the others, was not to go into effect 
until April 1, 1895; partly in order to leave time for the 
arrangement of the local system, partly in order to enable the 
state income tax to be perfected so that its increased yield 
would more than compensate for the loss of the taxes on 
product. Finally, the third law^ regulated the sources of 
local revenue. 

According to this law, the local bodies are not only per- 
mitted, but directed, to impose fees and special assessments 
in cases where the local action results in a special measurable 
benefit to the individual ; and the extent of these charges is 
definitely regulated. Indirect taxes are not forbidden, but it 
is provided that no new or increased taxes may be imposed 
on meat, corn or bread, potatoes or the articles of common 
consumption. Direct taxes may be imposed on real estate 
and on business. In special cases a local income tax may be 
levied as an addition to the state income tax ; but a maximum 
is fixed and permission is given to substitute in its stead taxes 
on expenditure, which must be so arranged as not to impose 
on the poor a heavier burden than on the rich. In no case 
may a local general property tax be imposed, nor may the 
existing taxes on rentals be increased. The statute does not 
affect in any way the rights of the local bodies to revenue 
from industrial enterprises or municipal monopolies, with 
the one exception that the charges must be sufficient to 
provide a revenue at least equal to the interest on the outlay 

^ Gesetz wegen Anfhebung direkter StaAtssteuem. This is printed in 
Finam-Archvo^ x., pp. 796-801. 

' Prenssisches Kommunalabgabengesetz. This has been published in 
Finam-An^iv^ z., pp. 318-341. The best edition is the one of Adickes, 
mentioned above, with commentary and notes. 



and a yearly addition to the sinking fund. The law closes 
with some minor provisions applicable to county or pro- 
vincial revenues. 

Into the details of these laws it is manifestly impossible to 
go. Were there space, it would be fruitful to call attention 
to some errors in the general theory and to some mistakes 
in the practical arrangements. Thus the abolition, rather 
than the improvement, of the rentals tax ; the retention of 
the indirect taxes ; the failure to provide for a state inheri- 
tance tax ; and the inadequate working out of the principles 
of the corporation tax constitute undeniable blemishes. All 
these defects, however, sink into insignificance when com- 
pared with the one great boon — the final acceptance of the 
principle of the segregation of source as between local and 
state revenues. For this all reformers have been contending 
the world over — in France as in Australia, in Italy as in 
America. To have successfully accomplished this result and 
to have brought it into harmony with the doctrine of faculty, 
is an achievement of sufficient importance to entitle Dr. 
Miquel to a high place in the ranks of fiscal reformers. ^ The 
year 1895 will mark an epoch not only in Prussian, but also 
in international finance. 

After this survey it is needless to point out the lessons appli- 
cable to the United States. The economic conditions of the 
civilized world are everywhere fast becoming the same ; and 
upon the changes in economic conditions depend the changes 
in financial systems. In old Europe as well as in yoimg Aus- 
tralia the same tendency is unmistakable — the trend to 
greater justice in taxation. When four widely distant coun- 
tries reform their systems almost simultaneously, and upon the 
same general lines, the inference is irresistible that the causes 
of the movement are of far more than merelo^jal significance. 
To shut our eyes to this world-wide movement would be 
supreme folly ; to profit by its lessons and to bring our own 
system into line with the demands of modern science and of 
modern conditions will be no less wise than it is inevitable. 





1 1 





It has often happened that the technical name of a new 
custom has been borrowed from abroad; but it is rare to 
find a foreign institution described by an exceedingly uncom- 
mon term, which is then naturalized on the assumption that 
foreign usage is being followed. This, however, is the case 
with the " Betterment Tax " in England. The institution is 
indeed found in America, but the name is unusual there. 
Exactly when and how the term came to be introduced into 
England is uncertain;* but nine out of ten Englishmen, 
when using the expression, think that they are following 
the American custom. It has now become so current in 
England that it may be considered as firmly established. 

I. The Origin, 

The principle of betterment has recently been defined by 
an official commission as "the principle that persons whose 
property has clearly been increased in market value by an 
improvement effected by local authorities, should specially 
contribute to the cost of the improvement."* Another offi- 
cial report deals specifically with "assessments according 
to benefits (betterment or amelioration)," and defines the 

1 The Duke of Argyll, in a speech in the House of Lords, referred to it as 
an *' absurd, foreign and vulgar" word. Mr. Baumann, on the other hand, 
says : " The word is respectable," but " the thing is not." Almost the only 
state in America where the term ♦* betterment tax" is to be found is Massa- 
chusetts : and even this is true mainly of the earlier laws and cases. 

2 Beport from the Select Committee of the House of Lords on Town Im- 
provements (Betterment), 1894. 




custom as " assessment according to benefits, and the intercep- 
tion by charge upon property of a portion of the value added 
to such property by the expenditure of public money for 
improvement." 1 To all Americans it will be apparent at 
once that what we are dealing with is nothing but the system 
of special assessments. 

What appears almost self-evident to Americans is hotly 
disputed in England. In the United States the local taxes, 
so far as real estate is concerned, are imposed on the owner 
of the land; in England the local rates, as they are called, 
are levied on the occupier. In the United States the tax is 
assessed on all land; in England it is assessed only on pro- 
ductive or rent-yielding land. In the United States, there- 
fore, it was comparatively easy to add to the existing tax on 
the proprietor this newer system of charges; in England 
the process is more difficult, because it implies not only 
a change in the principle of charge, but also a change in 
the method of assessment. Not the occupier, but the owner 
of the land, is to be directly reached. Thus the pro- 
posal, which in America is regarded as in harmony with 
vested interests, is viewed by its opponents in England as an 
attack on the rights of private property. 

Yet, curious as it may seem, the custom of assessments 
for special benefits is of English origin. In the year 1662, 
an act was passed to authorize the widening of certain streets 
in Westminster and providing for the defrayal of the cost 
by voluntary subscriptions. In case this should not suffice, 
the commissioners to lay out the streets were empowered to 
charge the owners of the property in proportion to the 
benefits received. ^ The important clause reads : 

"And whereas, the houses that remain standing . . . will re- 
ceive much advantage in the value of their rents by the Hberty of 
ayr and free recourse for trade and other conveniences by such 
enlargement, it is enacted . . . that ... a jury . . . shall . . • 

^ Orange Book of the London County Council, entitled Precedents of 
Assessment according to Benefits, 1893. 
2 13 and 14 Chas. II., chap. 2, sec. 29. 





judge and assess upon the owners and occupiers of such houses, 
such competent sum or sums of money or annual rent, in consid- 
eration of such improvement and renovation as in reason and 
good conscience they shall judge and think fit." 

Five years later a similar act was passed, to provide for 
the rebuilding of the city of London after the great fire. 
This contained an almost verbal repetition of the clause just 
cited. The changes were: first, that the charge was then to 
be made " in consideration of such improvement and meliora- 
tion," instead of "improvement and renovation" ; and, sec- 
ondly, that, whereas the charge of 1662 was to be assessed 
on the " owners and occupiers," the new charge was to be 
levied on the " owners and others interested, of and in such 
houses," according to "their several interests."^ That this 
law was not a mere dead letter is shown by a passage in 
Pepys* Diary where the actual operation of " the benefit of 
the melioration " is interestingly described.* 

Thus, over two hundred years ago the principle over which 
so earnest a contest is now being waged was in full opera- 
tion and in the very city where it is vehemently assailed as 
an unjust system of foreign importation. 

The law of 1667 is interesting in another respect. Not 
only were new streets to be laid out, but the commissioners 
were empowered to design and set out "the numbers and 
places for all common sewers, drains and vaults, and the 
order and manner of paving and pitching the streets and 
lanes within the said city or liberties thereof." Then follows 
the significant section : ^ — 

For the better effecting thereof, it shall ... be lawful . . . 
to impose any reasonable tax upon all houses within the said city 
or liberties thereof, in proportion to the benefit they shall receive 
thereby, for and towards the new making, cutting, altering, en- 
larging, amending, cleansing and scouring all and singular the 
said vaults, drains, sewers, pavements and pitching aforesaid. 

1 18 and 19 Chas. II., chap. 18, sec. 24. 

2 Pepys' Diaryy under date Dec. 3, 1667. The passage is quoted in the 
London County Council's Orange Book of Precedents^ p. 37. 
» 19 Chas. II., chap. 3, sec. 20. 

Here not only is the word " benefit" used, but the charge 
is called a tax. Still more important is the fact that while 
the custom itself seems to have died out in England, this act 
was the model upon which was framed the first law provid- 
ing for special assessments in America. The province 
law of 1691 of New York followed the law of 1667 almost 
word for word; and from New York, the custom later spread 
all over the United States. The system of special assess- 
ments or " betterment," although it fell into disuse in the coun- 
try of its origin, is thus primarily an English institution.^ 

II. Betterment and Taxation. 

We now come to the question which really lies at the root 
of the whole controversy in England : Is the so-caUed 
"betterment tax" a true tax or "local rate"? What 
appears to be merely a question of terminology has led 
to a great deal of confusion. For if it is a tax or rate, 
why should it be levied differently from other rates ? And 
if it is not a tax or rate, under what authority can it be 
levied at all ? 

We must revert to what has abeady been said in a previous 
chapter, but it is necessary to discuss the subject somewhat 
more in detail. 

As we have already seen, when the state makes the indi- 
vidual give up a part of his property, it does so primarily 
through the power of taxation,^ which in this wider sense 
denotes a forced contribution. Governments may levy, and 
have always levied, these forced contributions according 
to different principles — either that of benefit, or that 
of ability. They may say to the individual: we are 

1 Rosewater, Special Assessments (mentioned supra, p. 283), was the first 
to prove this. It is worthy of note that we find two instances already in 
New Amsterdam in 1667 and 1660. See Paulding, Affairs and Men of New 
Amsterdam in the Time of Governor Stuyvesant, 1843, pp. 14 and 16. But 
each was a sporadic case, applying only to a specific street. 

2 The revenue from expropriation and fines may be passed over as insig- 

' I 





I ' 

performing a special service for you, and shall make you 
pay for this peculiar benefit which you derive ; or they 
may say : we are expending certain moneys in the public 
interest, and shall ask you to pay your share, according to 
your means. The latter payment is called a tax in the nar- 
rower sense of the word. The question at once presents 
itself : Is not the former payment also a tax ? 

The difficulty here arises from confounding special with gen- 
eral benefits. The theory of benefits or of protection is true 
in the sense that if the government taxes the people, it is in 
duty bound to protect them and to confer upon them the 
advantages of good government. That is what is meant in 
America by the doctrine of "public purpose." Taxes must 
be used for public purposes, and must confer upon the pub- 
lic the usual benefits of government. But this is not 
the theory of benefit as the term is commonly employed. 
The theory of benefit claims that the government must give 
to each individual a return equivalent to the tax he has 
paid. If this means anything at all, it means that bene- 
fit and taxation are correlative. In this sense, the claim 
is unfounded ; for the government, when it levies a tax, 
never guarantees to do a particular thing for the partic- 
ular individual, or to confer upon him a special benefit. No 
one would be justified, legaUy or morally, in claiming a resti- 
tution of a tax because the action of the government was 
not worth quite so much to him as he thmks it is worth to 
his neighbor. The benefits of state action, for which a tax 
is paid, are quantitatively unmeasurable ; or, so far as they 
may be measured, they accrue to the individual not as a 
special result, but as an incidental result of his participa- 
tion in the common weal. The benefits of the army, of 
the judicial system, of the consular and diplomatic ser- 
vice, and of aU the other objects for which expenditures 
are made and taxes in general are levied, do not accrue 
to any one taxpayer more than to another. Even in 
local finance, where a general tax is levied to defray all 
the local expenditures, it cannot be maintained that the 

benefits arising from the action of the local judiciary, of the 
police, of the fire service, of the board of health, or of the 
other departments of local government are separately meas- 
urable for each individual. One may value the benefits 
greatly, while another may feel less interest in that particu- 
lar branch of the administration; yet this cannot be permitted 
to change the measure of their obligations to the govern- 
ment. Every member of the community for which these 
expenditures are made must contribute to these expendi- 
tures in proportion to his means to pay. If the govern- 
ment neglect its duty and fail in protecting his person 
from violence or his property from fire or from destruc- 
tion, he may use his political rights in overturning or in 
improving the administration; but he has no shadow of 
a claim for a diminution of his tax rate. Protection and 
taxation, in this sense, are not correlative. 

We have thus far been dealing with general taxes, whether 
federal, state or local. A general tax is a tax levied for gen- 
eral public purposes. But it may happen that government 
desires to raise money for some special purpose, and the tax 
is then called a special tax. Thus there may be a special 
tax levied upon the whole community to defray the cost of a 
war, or there may be a special local tax to defray the cost of 
some particular department. So, too, in a few of the Ameri- 
can states, like New Jersey, we find not only a special school 
tax, but special taxes, of the same natur<d as the English 
local rates, for police or for lighting or ibr fire purposes. 
Here, it is true, a special class of the community is singled 
out ; and one area is subject to the poor rate, while perhaps 
another is subject to the watching or the lighting rate. The 
charge, however, is still a tax, levied according to the prin- 
ciple of ability ; for although the particular area which is 
benefited is put into a separate class, the benefits to the 
individuals of the class are general, not special, exclusive, 
or individual benefits. Although aU the persons liable to 
this special tax are subject to the tax only because the class, 
as a whole, derives a benefit, yet each individual derives a 






I. I 

»»■ V! 

benefit, if at all, simply as a member of the class ; the gov- 
ernment does not do any one particular thing for him, as 
apart from the other members of the class. The " rate '* is 
a special tax as opposed to a general tax, because it defrays 
a special expenditure of government ; but as to every one 
within the class, the tax is payable whether the particular 
individual receives much or little benefit. 

In the poor rate, for instance, the original law expressly 
provided for assessments according to the ability of the pa- 
rishioners, or, as it was subsequently expressed, ad statum et 
facultates of the inhabitants. The degree of benefit accruing 
to each ratepayer is immaterial; for the rate is levied on all 
the inhabitants according to the English test of ability to 
pay, which was originally general property, but which has 
since then been confined to productive real estate. 

On this poor rate all the other local taxes, with only one 
or two exceptions, were built up. Of the church rate nothing 
more need be said, since it has always been imposed on the 
same principle as the poor rate.^ The sewers rate was origi- 
nally levied by a law of 1427, which, as well as its successor 
of 1531, does indeed speak of the benefits or advantages 
to be derived. Some recent writers have been misled by 
this statement into the belief that it is a precedent for 
the principle of betterment. A careful reading of the 
original acts, however, proves that the benefit is jurisdic- 
tional only, i.e. that a certain district is to be selected 
where the inhabitants derive a benefit from this govern- 
mental action, but that the rate or tax is to be assessed 
on each individual according to the quantity of his lands, 
irrespective of the degree of benefit conferred upon him.^ 

1 The church rate is said formerly to have been made by common estima- 
tion. ** What principle this common estimation was founded on does not 
appear, but it was always undoubtedly in reference ad statum et facultates^ 
that the burden was imposed.** Eeport of the Poor Law Commissioners on 
Local Taxation, 1843, 8vo edition, p. 43. Cf. ibid.y p. 22. 

a The law of 1427 enjoins the commissioners " to enquire ... by whose 
default such damages have there happened, and who doth hold lands and 
tenements, or hath any common of pasture or fishing in those parts, or else 

At that period the test of ability to pay was the quantity of 
land, but later the test became the rental value of the land. 
It has, moreover, been repeatedly decided that the sewers 
rate must be levied on the principle of ability, so that the offi- 
cial commission tells us that the sewers rate " is commonly 
imposed in exactly the same manner " as the poor rate.^ 

Even American commentators have been led astray by 
the example of the sewers rate.^ It is true that landhold- 
ers lying beyond the area in question cannot be taxed, 
because they do not belong to the class ; but the essential 
point is that all the members of the class are taxed, not 
according to the benefits they receive, but according to their 
abilities. The official commission tells us explicitly : " It is 
an indispensable condition (of the sewers rate) that a per- 
son taxed may by possibility receive benefit from the expen- 
diture of the tax, and therefore holders of mountainous or 
high ground which cannot be surrounded, are in general ex- 

in any wise have, or may have, the defence, profit and safeguard, as well in 
peril nigh as from the same far off, by the walls, ditches, gutters, sewers, 
bridges, causeys and wears, and also hurt or commodity by the same 
trenches, and then to distrain all them for the quantity of their lands and 
tenements, either by the number of acres or by their plow lands, for the 
rate of the portion of their tenure, or for the quantity of then- common of 
pasture or fishing, together with the bailiffs of liberties and other places of 
the county and places aforesaid.'* 6 Hen. VI., chap. 4. 

The law then directs the commissioners to make, repair, or cleanse or stop 
up the trenches, etc., "so that no tenants of lands or tenements ... nor 
other of what condition, state or dignity, which have or may have defence, 
commodity and safeguard by the said walls, ditches, etc. ... or else any 
hurt by the same trenches . . . shall in anywise be spared.** Ibid., chap. 6. 

The law of 1631 contains almost the same words, and assesses the rate 
*' after the quantity of their lands, tenements and rents, by the number of 
acres and purchase, after the rate of every person's portion, tenure or profit.** 
23 Hen. VIII., chap. v. There is no mention of any varying degree of bene- 
fit as the basis of the rate. 

1 Eeport of the Poor Law Commissioners on Local Taxation, p. 22. 

2 Cooley, Taxation, chap. xx. Baumann, Betterment (1893), p. 6, cor- 
rectly enough calls attention to this : '* It is most important not to confuse 
rating zones . . . with betterment. All the individuals within a rating zone 
pay the same proportion irrespective of the quantum of benefit which each 
individual may receive. But the quantum of benefit received by the indi- 
vidual is the essence of betterment.** 





ii > 

\ r 

empt. Stilly the exact measure of the benefit is not the measure 
of the liability to be taxed^ ^ 

The nearest approach to the principle of benefits is found 
in some of the English lighting and watching rates, where a 
distinction is drawn between land proper and improved prop- 
erty, and where the occupiers of land pay only one-third as 
much as the occupiers of houses and other buildings, possibly 
on the assumption that they do not get so much benefit.^ 
Yet even here there are only two classes — lands and improve- 
ments — and the charge upon the individual occupier is not 
proportioned to the special benefits he receives; he is thrown 

* Beport of the Poor Law Commissioners on Local Taxation^ p. 65. The 
statement in the text is strictly true of the ordinary sewers rate. Yet in 
more recent years there is an occasional instance of a charge under special 
sewers acts, where we find not only a separate area for the property bene- 
fited, but where it is permissible to levy a charge on each separate piece of 
land according to the benefits specially derived. These isolated examples 
would indeed be precedents for " betterment taxation " or assessment accord- 
ing to special benefit. So the Metropolitan Sewers Act of 1848 gave the com- 
missioners power to levy the charge on the various " lands or tenements in 
proportion to the several lengths of frontage abutting on such sewer as afore- 
said or when all the lands or tenements specially benefited or drained by 
such works, or when in any other case an assessment according to frontage 
shall appear to the commissioner inequitable, then in such proportion as the 
commissioner shall determine, such lands or tenements to be benefited by 
such work." 11 and 12 Vict., chap, cxii., sec. 81. This is quoted in the 
Orange Book of the London County Council. But the compiler, Mr. Charles 
Harrison, does not always adequately distinguish between such cases and many 
of the other so-called precedents, where the matter of benefit is jurisdictional 
only. He may have been led astray by the Beport of the Select Committee of 
the House of Lords on Conservancy Boards, 1877, no. 371, which accepted the 
statement of one of the witnesses of " the principle introduced by the statute 
of Henry VIII., and observed ever since, of taxing in proportion to the bene- 
fit conferred in each particular case." See Beport, vi. The statute of Henry 
VIII., as we now know, spoke only of a jurisdictional benefit. 

As to the later sewer acts, it has been repeatedly decided that " If prop- 
erty is situate within the area benefited by the sewers, it must contribute 
without any reference to the amount of benefit derived." See Reg. vs. 
Head, 3 B. & S. 419 ; 32 L. J. M. C. 115 ; 9 Jur. N. S. 871 ; 8 L. T. 708 ; 11 
W. R. 339. Cf Boyle and Davies, The Principles of Bating practically con- 
tidered, 1890, p. 426. 

» Lighting and Watching Act of 1833. See also 18 and 19 Vict, chap. 
120, sec. 165. 

into a general class with all others in the same category, and 
within this category every one pays according to his ability.* 
This statutory requirement, however, is not observed ; and 
the lighting and watching rates, like all the other English 
local rates, are commonly levied in exactly the same manner 
as the poor rate — that is, according to the ability of the 
ratepayer.^ The same thing may be said of the sanitary 
rates, which are legally chargeable on agricultural land, rail- 
ways, etc., at one-fourth only of the ratable value. 

The English rates are thus nothing but taxes — special 
taxes, it is true, but levied according to the principle of 
all direct taxation, on faculty or ability to pay. Whether 

1 This is overlooked by Mr. Harrison in his collection of precedents in the 

Orange Book. 

a " All these legal varieties are disregarded m practice," and the rates are 
made "on the same persons, on the same basis, and by the same scale as 
the poor's rate." Beport of the Poor Law Commissioners on Local T<Kca- 
tion, pp. 66, 67. While this report is exceedingly valuable for its facts, it is 
sometimes confused in its economics. Thus we find the f oUowing passage : — 

" For any system of taxation to be fair, it must bear a proportion both to 
the benefit conferred upon the taxpayers by the expenditure of the tax and 
to the means which the person possesses of paying the tax. It is, however, 
in all cases found to involve insuperable practical difficulties to combine both 
these conditions in the imposition of a tax, and it seems most usual to assume 
that the benefit derived is in proportion to the ability to pay, or that the abU- 
ity to pay is in proportion to the benefit derived. In most of the local taxes 
the ability to pay is the standard of taxation. In some, however, where the 
taxpayer has a definable share of the benefit of the expenditure, the pro- 
portion of the benefit enjoyed is made the standard of taxation. In other 
cases both principles are attempted to be combined." p. 43. 

As a matter of fact, the only examples of " benefit " adduced by the com- 
mission are the sewers rate and the lighting and watching rate. In the for- 
mer the assessment by acreage is assumed by the commissioners to repre- 
sent the principle of benefit; the assessment according to » profitableness," 
the principle of abUity. This is a mistake, because, as we have seen, 
taxation of land by mere quantity was at one time everywhere the test of 
ability. In the Ughting and watching rate "both principles," we are told, 
"are adopted, though very clumsfiy and inadequately." As has been ex- 
plamed, however, in the text, there is no question here of assessment accord- 
ing to special benefits to particular individuals. Thus the only examples 
adduced by the commission admit of a different interpretation, and the com- 
mission itself states " that the whole of our local taxation is imposed either by 
law, or by usages regardless of the law, on the same basis as the poor's rate." 





the local expenditure is defrayed by one general tax, as in 
some countries, or by a number of special taxes, as in Eng- 
land, is immaterial — in each case we are dealing with a 
tax proper. 1 

But when we leave the principle of ability — as measured 
by property or by rental value or by any other test — and 
come to a payment which differs in each particular case, and 
which is proportioned to the special or exclusive benefit 
accruing to the particular individual, it is apparent that 
we are dealing with a very different kind of charge. In- 
stead of the principle of faculty, we now have the principle 
of equivalents. The charge is not a rate or tax except in the 
wider sense that every compulsory charge levied by govern- 
ment may be called a tax, because it can be imposed only by vir- 
tue of the power of taxation. As we have seen above, how- 
ever, the taxing power may manifest itself in different forms ; 
a local rate is an example of one form, a highway toll or a 
cab license fee of another, a betterment charge of still 
another. Few Englishmen would say that a highway toll or 
a cab license is a rate or tax; yet a toll and a tax differ 
from each other scarcely more than do a local rate and a bet- 
terment charge. A local rate is levied for the purposes of 
the whole community or of a definite class of the community, 
according to the principle of capacity or ability to pay ; a 
highway toll or a cab license fee or a betterment charge is 
imposed on particular persons for special benefits accruing 
to the individual, as distinct from all other individuals in 
the community. 

Thus the problem is solved. A betterment charge (or 
special assessment) is at once a tax and not a tax. It 
is a tax in the sense that all compulsory charges are taxes, 

1 Professor Bastable, Public Mnanc€j p. 364, thus errs in stating that the 
English local rates are "measured for each payer by the benefit of the ser- 
Tice," and that " local taxation should be in proportion to advantage." In 
Rex vs. Mast, 6 T. R. 154, the principle of local taxation is laid down that 
** each inhabitant should contribute according to his ability, which is to be 
ascertained by his possessions in the parish." Cf. also Boyle and Davies, 
op. cit.j p. 99. 

because they are imposed by the taxing power of govern- 
ment. But it is not a tax in the narrower and common 
sense of the term. It is not a tax in the sense that the 
income tax or the house duty is a tax ; it is not a tax in 
the sense that a local rate is a tax ; it is just as much or 
as little of a tax as a marriage license fee. If we persist 
in employing the term tax for all manifestations of the 
taxing power, it will be necessary to coin a new word 
for taxes in the narrower sense, as distinguished from 
fees and special assessments. It is the thing, not the name, 
that is important ; and the confusion has arisen simply 
from the fact that we employ the same term, sometimes 
for the one conception, sometimes for the other. Much trouble 
would be avoided if the payment were called simply a better- 
ment charge or a special assessment, as opposed to a local 
rate or tax.^ 

1 The entire contention of Baumann, Bettermenti Worsement, Becoup- 
ment (1894), p. 36, in opposition to Mr. Harrison's statement that better- 
ment in the United States has been decided not to be taxation, rests on a 
failure to observe the distinction made in the text. " Special assessments " 
may indeed be " an exercise of the taxing power'* ; and yet "betterment" 
is not necessarily the same thing as "taxation." So also Mr. Baumann's 
criticism of Mr. Cripps' distinction (pp. 39-40) rests on a complete miscon- 

This is a convenient place to call attention to the errors in Mr. Baumann's 
earlier book, Betterment (1893). He entirely misunderstands Judge Cooley 
in imagining that that author condemns the practice of estimating the bene- 
fits accruing to each lot separately. As Mr. Rosewater points out in the 
Political Science Quarterly, viii., p. 764, what Judge Cooley really disap- 
proves, and what is now quite generally held to be unconstitutional, is the 
practice of charging upon the abutting owner the cost of the particular im- 
provement in front of his lot only, without reference to the benefits along 
the whole line of the work — in fact, without apportionment. From this 
misconception, Mr. Baumann has fallen into grievous error. He also fails 
to distinguish the safeguards thrown about the exercise of eminent domain 
in the American commonwealths from the procedure required in levying 
special assessments. It is, in most cases, merely an accident that the pro- 
ceedings for the two operations happen to be joined together. 

There are many other mistakes in the volume, as, for instance, the state- 
ment that special assessments are unconstitutional in Minnesota (p. 75) ; that 
their constitutionality is still doubtful in Illinois (p. 76) ; that Adam Smith lays 
down value as the only standard by which taxes can be apportioned (p. 81) ; and 






.f; ! 





' I 


III. The Principle. 

The theory of the betterment charge or assessment ac- 
cording to benefits is very simple. It rests upon the almost 
axiomatic principle that if the government by some positive 
action confers upon an individual a particular measurable 
advantage, it is only fair to the community that he should 
pay for it. The facts may be in question, for it may happen 
that the particular advantage is only ostensible, or that the 
special benefit is not measurable. But the facts being given, 
the principle seems self-evident. 

In our discussion of the single tax, it was pointed out 
that there is a distinction between unearned increment 
in general and the betterment principle in particular. The 
single tax on land values was found to be inequitable because 
benefit is not the general principle of taxation, and because, 
even if it were, it would not mean a single tax. The benefits 
of general governmental action are quantitatively immeas- 
urable ; we do not by paying taxes purchase a definite amount 
of advantages from the government as we buy a certain 
quantity of tea from the grocer. But if the government 
performs some special service for us, there is no reason 
why the public at large should pay for it: to the extent 
that the conmiunity as a whole is interested in the service, 
it is proper that it should contribute to the expense. If 
it is wholly a matter of common interest, the community 
should pay all ; if it is wholly a matter of individual benefit, 
the individual should pay all ; if it is partly common 
and partly individual, the cost should be divided and the 
individual should pay up to the amount of his measurable 
special benefit. In the one case, the expense is met by 
a tax or rate ; in the second, by a fee or toll, or by a 
special assessment or betterment charge; in the third, by a 
combination of both methods. To object to a betterment 

that American judges allow special assessments for benefit with reluctance 
(p. 100). On p. 80 we find the s&me confusion as that alluded to above in 
ihe later work. Most of the objections in this later book are too frivolous 
to deserve any reply. 

charge because it is not levied according to the principle of 
ability to pay is as illogical as to object to a tax because it is 
not levied according to the special advantage derived. We 
must not apply to one principle of public contribution the 
test peculiar to another principle. 

When, therefore, the local government performs a defi- 
nite act and makes a definite expenditure the result of 
which is a clear and measurable accretion to the value 
of some particular piece of property, every consideration of 
logic and justice demands a special contribution by the 
owner to defray this expenditure. 

As a principle, this is really no longer debatable. Even 
so conservative a body as the Committee of the English 
House of Lords, after hearing all the arguments in opposi- 
tion, has recently come to the conclusion that — 

The principle of betterment — in other words, the principle 
that persons whose property has clearly been increased in market 
value by an improvement effected by local authorities should 
specially contribute to the cost of the improvement — is not in 
itself unjust, and such persons can equitably be required to do so.* 

This concession practically marks the close of the contest 
on the question of principle, in England. The methods of 
carrying out the principle are indeed debatable ; but in its 
broad lines, the theory is now accepted in the chief quarter 
where opposition could be expected.^ 

1 Beport of the Select Committee on Town Improvements, 1894, p. iiL 

2 The legislative history of betterment in England is interesting. The 
first bill was the Strand Improvement bill of 1890, in which the betterment 
provisions inserted by the London County Council, and adopted in the 
chairman's draft report, were struck out by the Select Committee of the 
House of Commons. The next was the Cromwell Road Bridge bill of 1892, m 
which the betterment clause was struck out by the committee by a majority of 
one. Then came the London Improvements bill of 1893, providing for a new 
central street from the Strand to Holborn. This passed the House of Com- 
mons but was defeated in the House of Lords' committee. Finally came 
the Tower Bridge Southern Approach bill of 1804, which after various muta- 
tions was approved by the House of Lords' committee, and became law in 
1895, as 58 and 59 Vict., ch. cxxx. In this act the payment is termed an 
*' improvement charge." 

2 a 






I 1 







A subject much discussed in connection with betterment 
is that of "worsement." If an individual has to pay for a 
benefit, it was claimed that his neighbor should be recom^ 
pensed for damages to his property, caused by a public im- 
provement. The committee, however, decided that injury to 
property was to be taken into account only when a betterment 
charge was imposed upon the same owner for benefits accru- 
ing to his property in the immediate neighborhood, by the 
very same improvement. Further than this it was unwilling 
to go. As it has been well said, it is nothing less than a 
grotesque absurdity to suggest the creation of new vested 
interests in the perpetuation of such public evils as over- 
crowded and insanitary slums and in circuitous modes of 
communication.^ In the Tower Bridge Act of 1895, as well 
as in the Standing Orders of the House of Lords adopted in 
July, 1895, the legitimacy of " worsement " has been recog- 
nized, but only within the above very narrow limits. 

A plan sometimes urged as calculated to attain the 
same results as the betterment system is that of " recoup- 
ment." It has occurred that in making an improvement the 
municipal government or other public body has taken more 
land than was actually necessary, and after the execution of 
the work has sold the land at a higher price, thus retain- 
ing for the community the increment in value. It was shown 
by the testimony before the Lords' committee that, as a mat- 
ter of fact, these transactions had generally resulted in loss 
rather than in gain ; but it was claimed that this was due in 
large part to certain defects in the law. The committee re- 
ported itself " as not satisfied that it has ever been tried under 
circumstances calculated to make it successful. " ^ In England 
there is perhaps no objection to trying this experiment on a 
larger scale ; but in the democratic municipalities of America 

1 G. H. Blonden, Local Taxation and Finance^ 1896, p. 95. 

* *■*■ No sufficient power has ever yet been given to the local authorities to 
become possessed of the improved properties without buying out all the 
trade interests — a course which is inevitably attended with wasteful and 
extravagant expenditure.'* Beporti no. 10 (of recommendatious). 



it is questionable whether good results could be expected 
from the scheme, even if —as seems uncertain— it were con- 
stitutionally valid. 

It is evident, however, that the real difficulty with better- 
ment lies in the details of its execution. In the United 
States, where the system has for a long time been thor- 
oughly at home, it has been deemed sufficient to approxi- 
mate roughly to the benefits conferred. In no department 
of public contribution is it ever possible to gauge with 
precision the exact relation of the individual to the public 
purse. With special assessments, as with other operations of 
public finance, the best that governments can do is to reach 
substantial justice. The decision is left to the legally con- 
stituted authorities, and the assumed benefit, which is to 
guide the authorities in their decision, is not always neces- 
sarily the exact actual benefit, a fair approximation to the 
real benefit being now considered adequate for practical pur- 
poses. This result, however, has been reached only after 
considerable experience. 

In England, on the other hand, where the principle is 
about to be introduced, far more solicitude is shown, because 
the opposition of the vested interests is naturally stronger. 
The committee recommends certain rules, most of which 
have been incorporated into the Tower Bridge Act of 1895, 
which are intended to limit the charge to the amount of 
actual benefit, and to protect the owner against any possible 
abuse of the system. He must be notified not only of the 
proposed charge before the commencement of. the projected 
improvement, but also of the alleged increase in the value 
of his property within some reasonable period after the com- 
pletion of the work.i Furthermore, if the owner objects, 
the matter is to be decided by an arbitrator or a jury, the 

1 " The period should not be so short that the effect of the improvement 
could not be adequately tested, and it should not be so long as to make the 
property intended to be charged suffer in its market value by the suspension 
of the decision as to the charge." BeporU no. 3. In the Act of 1896 the 
limits are twelve months and three years. 68 and 59 Vict., eh. cxxx. 
sec. 36 (4). 



I 'I 



costs being borne in general by the local authority. Finally, 
if the owner still thinks that the charge exceeds the enhance- 
ment of value to his property, he may demand that the local 
authority purchase the property at its market value. ^ 

These provisions are interesting, the last being almost iden- 
tical with the provisions of the recent New Zealand law 
explained in another chapter. In New Zealand, it is applied 
to progressive taxation ; in England, it is recommended for 
the betterment charge. In each case it is simply a protec- 
tion of the individual against arbitrary administrative action. 
The other provision as to costs seems to be a little unfair to 
the government, as it puts a premium on litigation and is 
calculated to interfere with the prompt completion of the 
work. All these points are, however, matters of detail which 
can easily be adjusted. 

The benefit principle, even though it is not applicable to 
taxation proper, has thus its undoubted place in the sphere of 
local revenue. That it is liable to abuse may be conceded ;2 
but so is the principle of ability to pay. Taxes, like special 
assessments, have not always been levied with perfect fair- 
ness; but the departure from fairness must in these two 
cases be measured by entirely different standards. The 
systepi of special assessments, as has already been pointed 
out,^ embodies the kernel of truth in the unearned incre- 
ment doctrine. Dr. Rosewater puts the point admirably 
as follows : * — 

Special assessment midoubtedly transforms a certain part of the 
enhancement of land values from an unearned increment into an 

^ Beport, no. 7. The clause as adopted in the Act of 1895, sec. 36 (9), pro- 
vides that the option of selling must be exercised before the arbitration. 

2 For a history of these abuses, see Rosewater, Special Assessments, chap. 
iii. ; also ibid.^ pp. 142-144. 

» George A. Black, The History of the Municipal Ownership of Land on 
Manhattan Island^ p. 78. Columbia College Studies in History, Economics 
and Public Law, vol. i. , no. 3. 

* Rosewater, Special Assessments, p. 140. Cf. the articles on "The Bet- 
terment Tax," by the Duke of Argyll and by John Rae, in Contemporary 
Beview^ vols. IviL and IviiL 




earned increment. It does this at the very time that the benefit 
arises, thus avoiding every taint of confiscation of vested interests. 
Through it may be secured the chief advantages of the appro- 
priation of the future unearned increment, without destroying the 
healthful stimulus arising from the private ownership of landed 
property. The total increase is seldom appropriated, but only so 
much as is required to defray that share of the cost of the par- 
ticular improvement which may represent the special benefit con- 
ferred. We have here no imcharitable begrudging of all rise in 
value due to conditions other than those created by the party who 
reaps the advantage. All that is demanded is that when a person 
secures an enrichment to his estate, and the expense, if not borne 
by him, must be borne by some one, — in this instance, the tax- 
paying public — he shall make compensation therefor. This is 
the true equitable principle. The contributor pays not alone 
because he obtains a benefit, but because that benefit is joined to 
an expense the burden of which finds a fitter resting place upon 
his shoulders, than upon the shoulders of others not specially 

In the United States the betterment principle has long 
been firmly rooted in the revenue system; and although 
there may be particular cases in which it has not worked 
well, the evidence of experience and the popular verdict as 
to the methods employed are overwhelmingly in its favor. 
On the continent of Europe the system is now fast spreading 
because of the growing importance of municipal finance 
and of the more careful analysis of its underlying principles. 
England, which has taken the lead in the reform of the 
national fiscal system, cannot afford much longer to lag 
behind in the movement for the just distribution of local 
burdens. Without the application of the betterment prin- 
ciple, such justice can scarcely be secured. 

II ■; 

1 il 

' II 




In some respects the most significant fact of the recent 
development of economic thought is its growing international 
character. Not only does the modern economist find it neces- 
sary to draw his facts from a wider field than that of his own 
country; but if he desires to keep abreast of the advances 
in theory he also finds it incumbent on him to read many 
languages and to note the movements in widely distant 
countries. In no domain is this more true than in the 
science of finance. In the following pages an attempt will 
be made to run hurriedly over the productions of the last 
decade and in a general way to outline their value to the 
English speaking student. 

I. Germany. 

There are two methods of writing economic works. One 
is essentially historical and descriptive, giving an account 
of the past and of the actual state of legislation and of 
methods, and attempting to draw therefrom a statement of the 
underlying principles ; the other is primarily abstract and 
deductive, making little use of history and of facts, but en- 
deavoring to reach conclusions from well-defined principles. 
The modern German writers on the science of finance have 
for some time devoted themselves almost exclusively to the 
first method; but very recently a partial revulsion of feel- 
ing has been indicated by the appearance of several works 
which attempt to avoid the exaggerations of the extreme 
historical school, and to take refuge once again in purely 






theoretic discussion. For Germany, this is probably a salu- 
tary reaction, because of the comparative discredit into 
which pure theory had fallen. 

The Sandhook of the Science of Finance by Professor 
Umpf enbach ^ is, strictly speaking, not a new work. But as 
the first edition appeared about a quarter of a century ago, 
and as some notable additions have been made to the present 
volimie, it may be discussed as practically a new publica- 
tion. The first edition was published just before the cur- 
rent toward historical economics had set in strongly ; the 
second edition appears just after the tide has begun to ebb. 
There are hence almost no vestiges of the inductive treat- 
ment. In fact, the strong points of the work are the rigor of 
the theoretic discussions and the precision of the definitions. 

The general tone of the book is conservative. The author 
opposes the further industrial activity of the state, even in 
such domains as that of railroads ; he has nothing but ridi- 
cule for the idea of the income tax in practical life; he 
declares that the question of progression does not belong to 
the science of finance at all, because it involves communistic 
changes of property. These contentions are interesting as 
giving the work the characteristics of the French rather than 
of the modern German authorities. It is very doubtful, how- 
however, whether they will exert any influence on German 

A more important point in Umpfenbach's book is method- 
ology. The common division of public revenues by French 
writers like Leroy-Beaulieu is into domains, industrial imder- 
takings and taxes, corresponding to Adam Smith's old divi- 
sion into revenue from public lands, from public stock 
and from taxes. The German writers, on the other hand, 
early saw this division to be inadequate and, as we know, 
added another category, fees. The exact definition of 
fees, however, has always been a mooted point; and few 

1 Lehrhuch der Finanzwissenschaft. Von Dr. Karl Umpfenbach, o. 6. 
Professor der Staatswissenschaften an der Universitat Konigsberg. Zweite 
Auflage. Stuttgart, Ferdinand Enke, 1887. — 8vo, xu., 517 pp. 

H ' 







' I 

writers agree exactly on the distinction between fees 
and taxes. Umpfenbach defines fees as "special payments 
for the cost of a financial transaction, in so far as it is 
necessary for political purposes, and in so far as the expenses 
surpass those which it would be permissible to lay on the 
community as such." Passing over the minor infelicities of 
expression, we may say that at all events it conveys a precise 

Had Umpfenbach rested here, his book would have ren- 
dered a substantial service to the clearing up of ideas. But 
he adds to his three categories of fees, taxes and domains 
a fourth category of fiscal (or lucrative) prerogatives, which 
are defined as "compulsorily reserved, exclusive rights of the 
state over specified kinds of property rights." The founda- 
tion of this fourth category is to be found in the mediaeval 
regalia; but Umpfenbach makes it now include such widely 
diverse revenues as the poll tax, taxes on communication, 
on the transfer of property, on legacies and successions, rev- 
enue from treasure-trove, from mines, salt, tobacco, spirits 
and bank monopolies, and finally from licenses. He lays great 
emphasis on this division ; in fact, it is the thread which 
runs through the whole work. But the only result of its 
adoption would be undue restriction of the field of taxation, 
and an increased confusion as to the exact nature of taxes. 
What he gains by the separation of fees from taxes, he loses 
by the separation of taxes from fiscal prerogatives. His 
methodological explanation will not, on the whole, commend 
itself to students of finance. 

Much the same class of questions is treated by Professor 
Neumann in his work entitled Taxation,^ Neumann is well 
known as one of the prominent modern writers on finance. 
His book on Die progressive Mnkommensteuer remains one 
of the best works on that knotty subject; and in that, as in aU 

1 Die Steuer. Erster Band. Die Steuer und das offentliche Interesse. 
Eine Untersuchung tiber das Wesen der Steuer und die Gliederang der 
Staats- und Gemeinde-Einnahmen. Von Fr. J. Neumann. Leipzig, Duncker 
und Humblot, 1887. — Small Svo, ix., 562 pp. 

his earlier writings, is to be found a rich fund of historical 
and statistical information. In this newer work, however, 
Neumann has undertaken to analyse in detail the nature of 
taxation. The first volume, the only one that has yet appeared, 
is introductory and to a great extent methodological. The 
twelve chapters treat mainly of four topics : classification 
of public revenues, fees versus taxes, the principle of public 
interest, and direct versus indirect taxes. In the discussion 
of these points the author shows great acuteness and dialectic 
skill; yet three criticisms can be made. The discussion is too 
minute, and often borders on the wearisome ; the style is 
an3rthing but clear ; and the conclusions are not advanced 
with the necessary precision. 

After criticising the usual method of classification, Neu- 
mann defines fees as payments for special services of the state 
or the community, so far, but only so far, as the public interest 
is involved. This would include the tolls of roads, canals, 
railways and telegraphs, but would exclude the revenues 
from fiscal monopolies. He devotes over two hundred pages 
to the discussion of public interest, and finally defines it, but 
in so characteristic a manner that it must be given in the 
original : — 

Oeffentliches Interesse im (objectiven) engeren Sinne ist ein auf 
menschliche Handlungen oder Werke beztlgliches Interesse von 
Zielen oder Zwecken so grosser Bedeutung, dass um ihretwillen 
eine Auferlegung von Opfern nach herrschender Annahme ge- 
rechtfertigt ist. 

In other words, two hundred pages are devoted to proving 
that a " public interest is an interest of such importance as to 
justify a sacrifice on the part of the individual." This might 
surely have been shown in less than two hundred pages, and 
without the formidable array of proofs and counter-proofs, 
of exceptions and sub-exceptions, which fairly crowd the book 
and bewilder the reader. To be over-exact is often as great 
a mistake as to be superficial, for either excess is apt to result 
in confusion. 


It >: 






' ' I 

Much better is his discussion of the four methods of 
classifying direct and indirect taxes. Neumann finally allies 
himself to Parieu's method, making the distinction depend 
on the permanence or periodicity of the act. Other parts 
of the book also will prove suggestive, as, for instance, 
his discussion of the relation between taxes and prices ; but 
it might well have been boiled down to one-fifth of its present 
compass. Questions of methodology are not the all-absorbing 

The same criticism can certainly not be urged in the case 
of the last volume of Wagner's Science of Financed The 
first volumes of this great work are familiar to all students. 
Wagner started out almost two decades ago with the idea of 
publishing a new edition of Rau's finance, but soon found 
his differences from Rau to be so great as to call for a new 
creation, instead of a new edition. The first two volumes of 
the work appeared years ago — the second in 1880. This 
third volume deals not with general theory, but with special 
questions in the history and practice of taxation. Unfortu- 
nately Wagner's plan was so comprehensive, and his method 
80 productive of repetition, as to make the completion of the 
work doubtful. In fact, as it progressed, Wagner entered 
into continually greater details which would have been in 
place only in a cyclopeedia. The consequence is that it has 
taken him ten years to write the third volume, and that he 
has been able to discuss the present condition of French and 
English taxation only. Wagner himself seems to have tired 
of this minute method and now intimates that he can 
scarcely foresee the time when the work will be finished. 
This is the more to be regretted because the systems of 
France and of England have already been made familiar to 
us by other good publications, while the condition of the re- 

^ Finamwissenschaft. Von Adolf Wagner. Dritter Theil : Spedelle 
Steuerlehre. — Uebersicht der Steuergeschichte wichtigerer Staaten und Zeit- 
alter bis Ende des 18. Jahrhunderts. — Die Besteuemng des 19. Jahriiun- 
derts. Einleitung: Britische und franzosische Besteuerung. Leipzig, Win- 
ter'sche Verlagshandlung, 1889. — 8vo, xxxi., 916 pp. 

maining countries, which he has not yet fully treated, is far 
from being equally well known. It is to be hoped that the 
work will not be left a torso. The present volume requires 
no especial commentary beyond the statement that in all his 
details of the history and practice of taxation, as well as in 
his general summaries of the French and English systems, 
Wagner remains true to the ideas advanced in the former vol- 
umes. He has continually in mind the demands of what he 
calls the socio-political principles — the principles whereby 
the government is looked up to as the regulator of the distri- 
bution of wealth, and taxation is regarded as an engine to 
redress inequalities of fortune. Much as we may dissent from 
the fundamental points of Wagner's general position, it must 
be conceded that he has developed his doctrines with consum- 
mate keenness and phenomenal learning, and that his Science 
of Finance, even though incomplete, still stands at the head 
of financial literature for the suggestiveness of its views and 
the wealth of its contents. 

Professor Cohn's Science of Finance^ is constructed on an 
entirely different method. It forms the second volume of 
the general System of Political Economy, the opening volume 
of which was published several years before. After a gen- 
eral introduction on the nature and history of the science of 
finance, the first book treats of the essence of government 
economy or of the public household, dealing with public 
functions, public expenditures, the history and development 
of public revenue, and the budget. The second book dis- 
cusses the principles, history and actual systems of taxation. 
The third book is devoted to a presentation of German 
taxation. Finally, a fourth book treats of public credit. 

The chief interest of the work lies in the first book and in 
the first chapter of the second book. The remainder of the 

* System der Finamwissenschaft. Ein Lesebuch fur Studierende. Von 
Gustav Colin, ord. Prof, der Staatswissenschaften an der Universitat Got- 
tingen. Stuttgart, Ferdinand Enke, 1889. — 8vo, x., 804 pp. 

The Science of Finance. By GusUv Cohn. Translated by T. B. Veblen. 
Chicago, 1895. — 8vo, xi., 800 pp. 


7 I 

\ I 

M I 

^•6'5'^KS- /A^ TAXATION' 

volume is always interesting, as are all of Cohn's writings, 
but it contains nothing that can be called a real contribu- 
tion to financial science. He is indeed, through his intimate 
acquaintance with Swiss financial methods, often enabled to 
illustrate certain principles more successfully than any of his 
predecessors, but in the main he follows the rather conserva- 
tive lines of accepted views. The book on German taxation 
gives an excellent picture of the present situation, but is 
omitted in the translation. The chapters on public credit 
contain an admirable historical survey, but in matter of 
principle do not afford anything which cannot be found at 
least equally well said in Professor Adams' work. 

It is otherwise with the discussion of the general princi- 
ples of finance ; for Cohn's treatment of the various kinds of 
public contributions marks a distinct advance. His classi- 
fication of public revenues, although not completely satis- 
factory, is based upon an analysis of comparative private and 
public benefits, and is elucidated by some suggestive remarks. 
His description of the historical development of public econ- 
omy is clearer than that of Roscher, and traces the chief lines 
of development with a master-hand. His short discussion 
of the principles of local finance is especially welcome when 
compared to the laborious and confused chapters to be found 
in other treatises. 

Most striking is his treatment of the equities of taxation. 
Cohn shows that just as the accepted ideas of justice are a 
product of historical evolution, so the conception of just 
taxation has assumed a different form in every stage of 
human progress. He gives a sketch of the different ideas 
that swayed the public mind at various epochs, and then 
devotes himself in particular to a consideration of progres- 
sive taxation. The result of the discussion is the adoption 
of the principle of progression, not for Wagner's socio- 
political reasons, but simply because under modern con- 
ditions proportional taxation no longer corresponds to 
taxable capacity. Cohn seeks to define and to limit 
the principles of progression, and in connection with this 



gives a good history of the doctrine of the "minimum 
of subsistence." 

Weak points are not lacking, as, for instance, in his dis- 
cussion of the incidence of taxation. Here, as in many other 
places, Cohn conceals the difficulties of the problem by the 
brilliancy of his style. As this brilliancy is entirely absent 
in the translation, the work will probably not receive so 
favorable a reception in its English dress as it did in the 
original. It will have served our purpose, however, to call 
attention to the points in which Cohn's book marks an 
advance on its predecessors. Wagner, Roscher and Cohn 
supplement one another. Wagner is more radical and 
audacious in his suggestions and illustrates his theories by 
a wealth of statistical material ; Roscher is weak in theory 
but strong in history ; Cohn seeks to keep the golden 
mean. Cohn's Finance is superior to all others in two 
respects, — in clearness of style and in philosophic breadth 
of view. We welcome this new accession to economic litera- 
ture as one of the most important works of the decade, but 
very much fear that it will help the American student to 
only a slight extent. 

The most recent text-book is by Dr. Vocke. As this is, 
however, in some respects simply the elaboration of an earlier 
work, we shall devote a few words to its predecessor. In this 
former work, entitled Contributions^ Imposts and Taxes^ Dr. 
Vocke treats the subject in a somewhat peculiar way. 
After having won his spurs over a quarter of a century 
*^go by his History of English TaaMion^ at that time the 
most meritorious work on the topic, the venerable doctor 
here attempts to find the moral basis and relative justifica- 
tion of the various taxes. The problem which he sets out 
to solve is that of the exact difference between direct and 
indirect taxation ; and the conclusion to which he comes is 
at all events novel. In an introductory book he traces the 

* Die AbgabeUi Auflagen und die Steuer, vom Standpunkte der Geschichte 
und der Sittlichkeit. Von Dr. Wilhelm Vocke, geheimer Oberrechnungsrat 
Stuttgart, J. G. Cotta, 1887. — Large 8vo, xxvi., 625 pp. 

• .' i 

' I 


li ilii 





literary doctrine of the basis of taxation in general, and 
divides the authors into three schools: the representatives 
of the contract or protection doctrine, including most of 
the earlier English and French works ; the group which 
emphasizes the sovereign nature of the state and the duties 
of the subject, but without any deeper historical insight ; 
and finally the socio-political writers who, like Held, Schaffle 
and Wagner, attribute to the state a compensatory duty in 
taxing away inequalities of fortune. Vocke strongly objects 
to the latter as involving a dangerous socialistic tendency, 
and asserts that such considerations do not at all appertain 
to the science of finance. Neither in these schools, however, 
nor in the works of the " independent " writers, like Neu- 
mann, Stein and Roscher, does he find an answer to the great 
question : What is the ethical basis of direct, as compared 
with indirect, taxation ? 

An answer, he thinks, is possible only through a study of his- 
torical development. With characteristic German thorough- 
ness, but with what seems unnecessary detail, Vocke begins 
with a psychological analysis of the individual and traces the 
evolution of his economic condition and qualities through the 
family and tribe to the state. In the patriarchal stage, as in 
the family, the contributions of the individual to the support 
of the whole are compulsory, universal and proportional to 
property. In the feudal state the contributions of the vassal 
take the shape of personal services and of payments in 
kind, afterwards converted into money payments. Then 
begin the customs and duties, the fees and tolls, the excises 
or evil duties {mala tolta^^ all of which rest primarily upon 
power — upon the imperious necessities of the overlord. 
The legal basis is the princely prerogative, the imperium; in 
other words, naked force. Quite different from these veri- 
table impositions are the taxes proper. Beginning as the 
trinoda necessitas, aids and contributions, they soon develop 
into poll, property, and finally into profit taxes. These 
taxes, properly so called, rest on voluntary contributions, 
not on mere force ; they are universal, not special ; their 



standard is personal ability, not mere expediency. In the 
tax there is a moral quality, in the customs and excises 
there is none. 

This is the keynote of Vocke's book. The tax proper in 
its historical genesis is the direct tax, and connotes certain 
ethical ideas ; the indirect taxes are properly not taxes at 
all, but imposts, and carry with them no moral implication. 
He makes a careful study of the development of indirect 
taxation in the next political form — the absolute mon- 
archy; and he shows how and why the basis of direct 
taxation was changed from property to product. The re- 
maining two-thirds of the work are devoted to a considera- 
tion of taxation in the actual or constitutional state. He 
concludes that the correct point of view has been won, and 
that future reform must proceed in the path of elaborating 
the direct taxes and of curtailing the indirect taxes. 

Vocke's book may be termed a study in the philosophy of 
taxation. It contains no figures, and but few facts. The 
author's contention as to indirect taxation may be met by 
the reflection that justice cannot be the sole maxim of taxa- 
tion ; for the chief practical consideration is to balance the 
budget, and some taxes which are technically just may be prac- 
tically unremunerative and therefore unserviceable. More- 
over, Vocke fails to perceive that there are various kinds of 
indirect taxes, and that many of the imperfections of the older 
systems are removable. Yet, on the whole, he will serve as a 
useful antidote to such flimsy thinkers as McCuUoch, who ex- 
erted so considerable an influence on English views on taxation. 

In his new book entitled The ElemenU of the Science of 
Finance} which constitutes the second volume of Franken- 
stein's Rand- undLehrhuch der Staatswissenschaften^ Dr. Vocke 
devotes himself to the discussion of general principles. It is 
a relief, after the huge and many-volumed German works on 
the subject, to find the science here treated as a whole and in 
so compact a form. In other respects, also. Dr. Vocke's work 

^ Die Grundzuge der Finanzwissenschqft. Von Dr. Wilhelm Vocke. 
Leipzig, C. L. Hirschfeld, 1894. — xii., 446 pp. 



differs from most of its German predecessors. It contains 
almost no references to literature and it is written in a style 
calculated to interest the average layman. But to those 
acquainted with the work just discussed, the present volume 
will not bring much that is new. 

Here, as before, he looks upon financial history simply as 
the medium of bringing out more and more cleariy with 
every generation the idea of faculty. Here, as before, he 
confines the term tax to direct taxation and eliminates from 
the whole field of compulsory revenue the so-called Ver- 
brauchsauflagen^ or indirect taxes on consumption. His 
whole classification of revenues is very confusing. On the 
one hand he puts the private economic revenues, by which 
he understands those from the public domain and from the 
prerogatives as well as from industrial undertakings ; on the 
other hand he puts the compulsory revenues, divided into 
fees, payments for transactions (Verkehrrnhgahen) and taxes. 
Between these he puts another category, the so-called 
"mixed" revenues, which he again divides oddly enough 
into economic monopolies, fiscal monopolies and imposts 
( Verbrauchsauflagen). It will be seen how unmodern this is, 
and how little Dr. Vocke has profited by recent discussion 
both at home and abroad. 

At the same time, in his treatment of taxation we find many 
good points, such as his examination of the place where a 
tax ought to be paid, involving some of the difficult questions 
of double taxation. A valuable feature of the book is the 
discussion of the norm of taxation and the measure of faculty, 
in which he treats successively of property, product and 
income. Undue stress seems to be laid on the second of 
these, although the author cleverly exposes some of the 
exaggerations of his predecessors. Most of the book is of 
interest chiefly to Germans ; but as there are certain broad 
traits of industrial development common to all countries, 
students of American and English finance will find in Dr. 
Vocke's volume many hints which can be fruitfully applied 
to conditions at home. The bibliography, especially as 



regards foreign literature, is weak. The book can, never- 
theless, be recommended, with important reservations, to 
advanced students. 

II. France. 

After the volume of McCuUoch, published in 1853, no 
English work on the principles of taxation appeared for 
forty years. English and American readers were compelled 
to depend on German and French treatises ; and, from 
greater familiarity with the language, more commonly on 
the latter. But since it has been an unfortunate habit of 
many French writers on finance to discuss their topics in 
happy disregard of the newest thought in other countries, 
it follows that even their most approved works on taxation 
give the reader only the French view, not the wider scientific 
or comparative view. This reproach to French literature 
has now been removed by the admirable work of Professor 
Denis, who is, however, not a Frenchman, but a Belgian. 

Professor Denis made his reputation as an authority on 
finance some years ago with the valuable report to the city 
council of Brussels on the income tax, afterwards reprinted 
as a bulky volume. Since that time he has been giving 
courses of lectures on finance, which were subsequently pub- 
lished in book form under the general title Taxation,^ The 
present volume gives the ground covered in 1886-87 ; a 
succeeding volume will continue the subject so as to include 
the whole field of taxation. 

The fact that these are published lectures contributes 
to the value, as well as somewhat to the shortcomings, of the 
book. The style is simple and clear, and the arrangement 
is logical and sharply defined; but on the other hand the 
lecture form has made it impracticable to give authorities 
for the facts and opinions quoted, except by a short bibli- 

^ Ulmpot. Lemons donnfies aux cours publics de la ville de Bmxelles. 
Par H. Denis, Professeur k 1' University. Premifere S6rie. Bmxelles, Veuve 
Monnom, 1889. — 8vo, xiii., 309 pp. — [Accompagn6 d'un] Atlas de Statis- 
tique comparee. — Large folio, 25 plates. 






ography at the close of each chapter. Furthermore, the 
details of the argument have not been pursued with such 
care as would be demanded in a work constructed on other 
principles. Many of the finer points, including some that 
are of permanent practical importance in other coun- 
tries, receive no attention at all. The history and facts of 
taxation, again, are given only in a very fragmentary way. 
With all these qualifications, however, the book of M. Denis, 
so far as we can judge from the present instalment, may be 
regarded as one of the most valuable works on taxation 
hitherto published. Its chief claim to recognition is not so 
much the views of the author, as the calm and unbiassed 
consideration of the doctrines of all his predecessors. The 
fundamental vice of many writers is the assumption that the 
views expressed by them are new ; for ignorance of economic 
and financial literature is scarcely less common than igno- 
rance of economic and financial facts. 

Professor Denis, considering the science of finance as a sub- 
ordinate division of sociology, and as distinct from political 
economy although having many points in connection with it, 
attempts to lay down the laws of the relations of these sciences. 
The greater part of the book is devoted to a discussion of the 
problems of justice, and to a consideration of the various 
direct taxes. On many of the important questions, such 
as progression, minimum of subsistence, incidence, the basis 
of taxation, etc,^ readers who have been confined to French 
and to older English works will find a wealth of new ideas 
and a mass of interesting facts. Of course no work written 
by a European, or at all events by a continental, scholar 
can be expected to treat primarily of those questions 
which most interest and affect Americans; but if there is 
any science at all in finance, such works as this must be 
deemed of the greatest importance to Americans and Euro- 
peans alike. Some minor mistakes might be noted ; as the 
statement that the idea of the differentiation of the income 
tax is to be ascribed to a German source. In reality the 
theory can be dated back to the beginning of the cen- 



tury in England, and it has been fully discussed in par- 
liamentary reports and in scientific essays for many decades. 
But such smaller points must be overlooked in a considera- 
tion of the general tone and value of the book. The useful- 
ness of the work is greatly increased by the accompanying 
volume of graphic tables, which give in small compass what 
would require many words to explain. 

France has of late been devoting more attention to prac- 
tice than to theory. Since the standard work of Leroy- 
Beaulieu, published almost two decades ago, there are very 
few books to be mentioned of wider scientific interest, if 
we except the brilliant little sketch by L^on Say published 
during the eighties. But France also has had her practical 
difficulties to meet, and it is to these practical questions that 
most of the recent writers have addressed themselves. 

In France the discontent is of long standing. Almost 
every author for the last twenty years has been calling 
attention to the lack of system and to the glaring inequali- 
ties in the present practice of taxation. Ever since the war 
of 1870 repeated efforts have been made to supplement the 
direct taxes and to rid the country of some of the burdensome 
indirect taxes by the creation of an income tax ; and the advan- 
tages of such a policy had been hotly discussed by both sides. 
In 1887 the strife was renewed owing to the proposition of 
Dr. Koenig, whose mSmoire on A New Income Tax ^ was con- 
sidered so important that the project recommended in its 
pages was adopted by M. Dauphin, then minister of finance, 
and was introduced as a government measure. 

Dr. Koenig holds that the imposition of an income tax 
assessed on the declared income of individuals is practically 
impossible in France. He finds that the experience of Eng- 
land and Germany all point to the same result — evasion has 
become a system, deceit the rule. A far better method 
appears to him to be to calculate the income by some outward 

1 Un nouvel Impot sur le Bevenu. Mfimoire qui a inspire le Projet du 
Gouveraement relatif k la R6forme de la Contribution personnelle mobili^re. 
Par Dr. Gustave Koenig. Paris, Guillaumin, 1887. — 12mo, Ixiii., 195 pp. 

■ H 



sign, sucli as the house rent. The contribution personnelle et 
mohiliire is already based on this principle which Dr. Koenig 
proposes to develop. It is a well-known fact that the 
lower we go in the social scale the higher is the propor- 
tion that house rent bears to total expenses or to income. 
Rent is an increasing element of expense in proportion as 
expenses decrease ; the poor spend relatively far more than 
the rich. Dr. Koenig suggests a progressive rate of taxa- 
tion assessed on the house rent, maintaining that this pro- 
gressive rate will counterbalance the decreasing proportion 
that rent bears to expense. The plan is skilfully worked 
out ; but, in common with all plans of taxing expense, it 
has one defect. What a man spends is no sure criterion of 
his income, or of his ability ; and the higher you go, the more 
uncertain does the criterion become. The objection to the 
prevalent French system is that the wealthy escape their 
share of taxation ; but a tax on expense, even at a progressive 
rate, while undoubtedly a step in advance, would not com- 
pletely remove the objection. Dr. Koenig's plan has indeed 
the merit of doing away with all inquisitorial difficulties and 
of attaching itself to existing conditions ; but it is at best a 
half-hearted measure, a mere temporizing expedient to be 
thrown as a sop to the radicals. It did not satisfy them, and 
the bill was finally killed in the legislature. The work is, 
nevertheless, interesting and contains much valuable infor- 
mation. The allusions to America are not always felicitous. 
M. Guyot, in his work on The Income Tax^ sets himself a 
different task. The critics of the French system of taxation 
have always contended that personal property is unduly 
exempted. M. Guyot was requested by official authority to 
investigate their propositions for an income or for a general 
property tax ; and his book furnishes a noteworthy addition to 
the studies previously made by Menier, Denis and Chailley. 
The report is one of description rather than of analysis, and 

1 Vlmpot sur le Bevenu : Bapport fait au nam de la Commission du 
Budget. Par Yves Guyot. Paris, Guillaumin et C'S 1887. — 12mo, xii., 
347 pp. 



the various parts are of quite unequal value. The account 
of the English income tax is neither detailed nor satisfactory. 
Attention, however, is called to the familiar fact that the 
English system is not a tax on general income, but on 
product, and that with the exception of schedule D (income 
from commercial pursuits, etc,) it may well be compared with 
the contribution fonciire and the contribution personnelle et 
mobiliire of France. The description of American taxation 
is absurdly inadequate, and that of the German system is not 
much better. On the other hand, the working of the Italian 
law of 1877 taxing the income of movable property is fully 
explained ; and a good chapter is devoted to the income and 
property taxes of the Swiss cantons. 

M. Guyot is not a partisan of the income tax ; he advances 
the common argument of the inquisitorial character of the 
tax, and discusses rather superficially the question of progres- 
sion. The history of the various projects from 1848 onward 
is, however, well written and interesting. He thinks that 
France committed a grave mistake after the Prussian war 
in increasing the indirect taxes. He leans toward a general 
property tax, like that advocated by Menier ; and in dis- 
cussing the objection that the valuation is attended with 
great difficulties, he says: "La pratique des Etats-Unis et 
de la Suisse repond encore a cette objection." It is to be 
feared that this rosy view is caused by entire ignorance of 
American methods and results. His error shows the extreme 
danger of general analogies, and tends to make one sceptical 
as to M. Guyot's other propositions. 

The practical outcome of the report is a proposal to reform 
the property taxes. The land tax, as imposed in 1790, is an 
apportioned tax. As a consequence, as early as 1821 the divi- 
sion between the departments and the communes was so un- 
equal that in some cases the tax amounted to one-sixth, in 
others to only one-seventeenth, of the rent or produce. A gen- 
eral valuation or cadastre was begun in 1808 but was not 
finished until 1851 ; and in the meantime the valuation has 
again greatly changed, so that at present the amount of tax paid 



I i 




varies from one to twenty per cent of the rent. As an 
escape from this crying inequality, Guyot demands its con- 
version into a percentage tax, in order that each plot 
may bear its proportionate burden. He would, moreover, 
have the tax levied on capital value, rather than on rent 
or annual value. A similar reform is suggested for the 
tax on personal property (Ja contribution personnelle et 
mohiliere)^ which since 1832 has been apportioned. These 
changes, together with an abolition of the duties on the trans- 
fer of land, amounting at present to ten per cent of the 
value, would in his opinion result in a far more equable and 
remunerative fiscal system, and would serve as an introduction 
to still greater and more important reforms. The student 
of comparative taxation will find in the volume many useful 

In a widely read work on Financial Reform^ another 
remedy is proposed. The title is somewhat misleading, as 
M. Raynaud is the member of the society for financial reform 
who offered the prize, while M. Lorrain is the author of the 
essay which took the prize. M. Lorrain's plan, based on 
taxation of expense, is very simple. He would have the 
government abolish all existing taxes except the import and 
succession duties. In their stead the government would 
defray all its expenses through the issue of circulating notes 
payable in three years. These notes (hons du trSsor) while 
outstanding, would be subjected to a tax of ten centimes per 
day for every hundred francs, the tax being paid by the 
holder, who afiixes stamps for the requisite amount to the 
notes. The idea is that the notes are to form the sole cir- 
culating medium (with the exception noted below) ; and 
that, since every one must use them, every one will pay a 
tax in proportion to his expense. To provide for the exi- 
gencies of trade, all checks, drafts, bills of exchange, etc.^ are 

^ Les Beformes Fiscales. Revolution Facifiqae par PImpot sur les 
Revenus. Systeme de M. Jacques Lorrain, premier laur^at, etc. Par 
A. Raynaud, avec une preface d'Augustin Gallopin. Paris, Guillaumin, 
1888.— viii., 196 pp. 



subjected to a like tax. No note is to be issued under one 
hundred francs, so that the poor, who will continue to use 
small silver change, will be practically exempt. The sale 
of the stamps will defray all public expenses. 

Were it not that this fantastic idea received the prize of 
two thousand francs, and that the society for financial re- 
form circulated it extensively, it would not deserve notice 
here. Its absurdity is apparent. As a currency scheme it 
approaches dangerously near to the fiat-money craze; for 
the government will have no check on its extravagance, and 
the notes, like the assignats of old, must inevitably depre- 
ciate. As a tax scheme it is flagrantly inequitable, for the 
tax will be paid, not by the consumer, as is claimed, but by 
the debtor, whether he be producer or consumer. Even if 
paid by the consumer, it would be, like most taxes on con- 
sumption, regressive, or as the French say, progre%sif a 
rehours. Finally, it would fall harder on the working 
classes than on all others, because it would bring about 
compulsory purchases of commodities in order to get rid of 
the notes as soon as possible. To call such a tax Vimpdt sur 
lea revenus is a crass misnomer. 

It would, however, lead us too far afield to pursue the study 
of practical tax reform in France. What primarily interests 
us here is the general scientific work in taxation; and 
with two exceptions the recent years have little to show. 
The book of Professor Worms, on The Science of Finance,^ is 
a smoothly written discussion of some general questions. 
The author displays familiarity with the older German liter- 
ature ; but, as he himself states, desires to give only an ele- 
mentary account of some of the fundamental problems. He 
is on the whole very fair ; but the book is not clear-cut, 
and is not apt to exert a considerable influence outside of 
France. A distinctly abler work is that of Professor Stourm. 

M. Stourm has long been favorably known as the author 

* Doctrine, Histoire, Pratique et Beforme Financiere ou Expose elemeti' 
taire et critique de la Science des Finances. Par Emile Worms, Professeur 
k la Faculty de Rennes. Paris, A. Giard, 1891. — 8vo, 401 pp. 









of an excellent book on the Budget^ as well as of the classic 
study on the Finances of the Old Regime and the Revolution, 
It was natural, therefore, to expect that his new book on 
General Systems of Taxation ^ would be an important contri- 
bution to science. As a matter of fact, the work proves to 
be in some respects disappointing. 

As in all the writings of M. Stourm, the reader will in- 
deed find a simplicity and clearness that leave nothing to be 
desired. But some readers will question whether the sim- 
plicity is not in this case, at least, to some extent purchased 
at the cost of thoroughness. To the student who knows 
anything of the complexities of many of the problems, the 
sang-froid with which whole classes of arguments are either 
absolutely ignored or coolly brushed aside is surprising. 
M. Stourm is a conservative ; but that he should treat the 
arguments of his opponents so cavalierly is disheartening. 
The book has many admirable points ; it brings clearly 
before us the real problems of French taxation, it abounds 
in felicitous illustrations, and it has some excellent criti- 
cism of certain French projects. Its chief defect is its insu- 
larity. Although it abounds in references to French works, 
only a single foreign author on finance is mentioned later than 
John Stuart Mill, and that one, an American, in a wrong 
connection and with a mutilated title. Not a word is said 
about the contributions to theory made by the Germans, the 
Italians, the Dutch and others, during the past ten or twenty 
years. Even as to the practical discussions, we find with a 
few exceptions little that has not already been said, although 
perhaps not with the same grace and skill, in other works. 
It may be alleged in extenuation that the book was meant to 
explain the French system of taxation ; but there is noth- 
ing in the title to suggest this, and even in a discussion of 
the French system more regard should have been paid to 
general theory. The book also contains some errors of fact. 
The system of direct taxation in America is mentioned as a 

* Systemes Qeneraux d'lmpots. Par Ren6 Stourm, Ancien Inspecteur des 
EinaDces. Paris, Gaillaumin et C>«, 1893. — 415 pp. 



warning example of the " mixed system," or combination of 
the income tax with the property tax ; while the general 
property tax, or " im]p6t sur le capital " is said never to have 
existed alone an3nvhere. 

The work is in a measure redeemed by a vivacity of treat- 
ment and a charm of style, unusual even among Frenchmen. 
Were it as erudite and profound as it is attractive, it would 
rank with the most remarkable books of the decade. 

III. Italy^ Holland and Spain, 

In some respects the best work on certain lines of public 
finance has recently been done by the two nations with 
whose literature we are less familiar, — the Italian and the 
Dutch It is worth while to call attention to a few of their 
late books on general theory. 

The Italians have always been remarkable for the avidity 
with which they have seized upon and attempted to assimilate 
foreign theories ; and so it is with the application of the more 
recent doctrines of value to fiscal problems. Professor Ricca- 
Salerno's Science of Finance^ is only a compendium, but it is 
noteworthy for its clear and succinct discussion of funda- 
mental problems. It deals very little with facts, and never 
with details, but attempts to lay down guiding principles. 
It is in many respects more difficult to write a small work 
than a large one, and Ricca-Salerno might easily, had he 
so chosen, have expanded his volume; for his previous 
elaborate works on the History of Fiscal Doctrines in Italy 
and the Theory of Public D^hts show that he is fully 
acquainted with all the literature of the subject. In this 
little work he discusses first what he considers to be the 
three principal doctrines of public finance,— the theories 
of consumption, exchange and production. Many of 
his observations are acute, but his criticisms as well as 
his conclusions are based chiefly on those of Sax. He 

1 Scienza delle Finanze. Di Giuseppe Ricca-Salerno. Florence, J. Bar- 
bera, 1888. — 12mo, 263 pp. 





treats of the doctrines of benefit and of faculty in mat- 
ters of public revenue ; but like most of the continental 
writers he distinguishes only between fees and taxes. 
Ricca-Salerno's attempt always to find the golden mean 
sometimes brings him into difiiculties, as in the case of pro- 
gressive taxation, which he says is not at all a matter of 
theory, but of practice. The doctrine of incidence is passed 
over a little too summarily, but the results of recent studies 
are shown in the application of the final-utility theory to 
fiscal problems. On the whole the little work is important, 
not only because of these newer views, but also on account 
of the eminently lucid presentation, in small compass, of the 

basic doctrines. 

Not only Ricca-Salerno but other writers, young and old, 
have started out in their discussion from a consideration 
of the more recent theories of value. Professor Viti de 
Marco, in his Theoretical Character of Financial Economy,^ 
endeavors to point out the resemblances and the differences 
between finance and economics, criticising the prevalent dis- 
tinction between science and art, and pointing out the real 
nature of natural law in finance. In a more acute work 
on The Scientific Data of Public Finance^ Mazzola attempts 
to state the general characteristics of finance as a social 
phenomenon. He not only deals with questions of method, 
but devotes himself especially to the economic basis of tax- 
ation, taking issue in several points with Sax. His work, 
full of dialectic and of keen reasoning, is only for the most 
advanced student. It is, however, questionable whether 
any attempt to explain taxation solely as a form of value can 

ever succeed. 

Professor Zorli goes a step further. Starting out with two 
works on Fiscal Systems^ and on the Italian Law of Tax- 

1 II Carattere Teoretico delV Economia Finanziaria. Di A. de Viti de 
Marco. Roma, Pasqualucci, 1888. —8vo, 163 pp. 

2 I Dati Scientifici delta Finanza Pubblica. Di Ugo Mazzola. Roma, 
Loescher, 1890. — 8vo, 216 pp. 

» Sistemi Finanziari. Di Alberto Zorli. Bologna, Zanichelli, 1885.— 




ation} he soon found it necessary to get a theoretical basis for 
his conclusions. This he sought in his Science of Taxation? 
He tells us that neither the " concrete-abstract " method nor 
the historical method alone can solve the problems. For the 
science of taxation he claims a complete autonomy as the 
most important part of finance, but would include there- 
under also the subject of fees. His classification of public 
revenues, incidentally remarked, displays some acute criti- 
cism of his German and Austrian predecessors, but is not 
wholly satisfactory. In the chapter on the causes of taxa- 
tion, Zorli discusses at some length the views of Sax, and 
while conceding that subjective value and final utility play 
a considerable role in the interpretation of actual tax sys- 
tems, he points out that they do not form the sole or even 
the most important explanation. The final chapter on the 
effects of taxation is based largely on the work of Cournot. 
In a stiU later book, entitled the Psychological Theory of 
Public Finance^^ he develops his own ideas a little more fully. 
His contention is that just as value and utility depend upon 
certain psychological processes, so taxation which deals with 
public value must be studied from the same point of view. 
In his chapter on the psychological basis, he discusses the 
Austrian school ; in the succeeding chapter on the relations 
of political and economic sentiment to public finance, he de- 
velops the suggestive idea of Loria. But his whole treat- 
ment remains, so to say, up in the clouds ; and it is often 
difficult to see the application to practical problems. Finally, 
Professor Conigliani, in his General Theory of the Effects of 
Taxation^ gives a very abstract discussion of taxation re- 

1 II Diritto Tnbutario Italiano. Di Alberto Zorli. Bologna, Tip. Com- 
positori, 1887. — 8vo. 

2 La Scienza del Tributi in rapporto alle Becenti Teorie Economiche. Di 
Alberto Zorli. Bologna, Fava e Garagnani, 1890. — 8vo, 119 pp. 

3 Teoria Psicologica ddla Finanza Pubblica. Di Alberto Zorli. Bologna, 
1890.— 8vo, 77 pp. 

* Teoria Generale degli Effetti Economici delle Imposte. Saggio di Eco- 
nomia Pura. Del Dottor Carlo A. Conigliani. Milano, Hoepli, 1890.— 8vo, 
281 pp. 



I' I 



garded simply as an addition to the cost of pioduction. 
He deals with the most fundamental problems ; but the 
effort is a little too much for him, and the treatment of 
so far-reaching a set of questions is far from satisfactory. 
All these Italian works, however, show the undoubted im- 
pulse given by the modern doctrines of value and utility to 
the investigation of fiscal theory. 

Somewhat similar is the impression made by the recent 
Dutch works. The writers of Holland are not so well 
known as they deserve to be. The contest between the 
schools, that has agitated Germany and Italy and has spread 
to England and America, has never affected Holland. The 
Dutch writers have pursued in harmony the even tenor of 
their way, accepting what was best in both schools, and de- 
veloping on independent lines. This harmony is in great 
part due to the leader of the Dutch economists, N. G. Pierson, 
who from the very outset, two decades ago, accepted Jevons' 
theories. In fact, the final-utility theory of value had been 
accepted and developed in many of its applications in Hol- 
land years before the so-called Austrian school made itself 
talked of. On the other hand, Holland has not been lacking 
in those who have devoted themselves especially to the his- 
torical and statistical side of economics, without thinking, 
however, that they possessed all the truth. The science of 
finance was treated at a somewhat later stage of Dutch 
development, but with equal success. 

One of the most recent treatises is Cort van der Linden's 
Text-hook of Finance^^ which deals in this volume only with 
taxation. After a general discussion of the nature and 
importance of public revenues, the author treats of the three 
divisions of taxation, as based respectively on the legal, the 
economic and the fiscal principles. The legal principles are 
those of equality, of what he calls social policy, and of 
universality. The economic principles deal with the pres- 

^ Leerboek der Financien. De Theorie der Belastingen. Door P. W. A. 
Cort van der Linden. Hoogleeraar aan de Faculteit der Rechtsgeleerdheid 
de Groningen. The Hague, Gebr. Belinfante, 1887. — 8vo, 608 pp. 



sure and the shifting of taxation. The fiscal principles are 
those of adequacy, fixity, elasticity, and innocuity or the 
least possible detriment to production and exchange. This 
division is perhaps not unexceptionable. An important part 
of the work is devoted to the administrative side of public 
finance, such as the methods of payment, of control, of 
remedies and of penalties. This includes both an historical 
and a comparative discussion, and attempts to draw some 
general conclusions. The author divides taxes into those on 
product (ontvangsthelastingen)^ on expense, on exchange and 
on income ; and he compares the systems in England, Ger- 
many, France and Holland. While not making any noteworthy 
contribution to theory, van der Linden's work is welcome as 
extending our material for a comparative science of finance. 
A more important treatise is Pierson's Handbook of PolitU 
cal Economy^ ^ of which the first part was published in 1884. 
Over half of the present volume is concerned with public 
finance ; although many of the problems had several years 
ago been dealt with by him in his GrondheginBelen der 
Staathuishoudkunde, Pierson's treatment is characterized 
by broad touches. He is thoroughly at home in all the 
recent continental, English and even American literature, 
and tries to get to the bottom of many difficult problems. 
He is one of the first to attempt a comprehensive theory 
of incidence combining Schaffle's amortization theory with 
some more eclectic views. He sharply criticises Mill's 
treatment of the principle of equality of sacrifice, and 
constructs his whole theory on the principle of faculty. 
Everywhere the subject is treated with a master-hand. It 
is a work not so much for the beginner, as for the advanced 
student who desires to analyze more carefully the leading 
theories of modern public finance. Among the discussions 
to which he devotes special attention is that of progressive 
taxation, in the course of which he criticises the views of 
the other Dutch writers, which have bSen treated in detail 

1 Leerboek der Staathuishoudkunde. Door N. G. Pierson. 
Deel. Haarlem, De Erven F. Bohn, 1890. —-8vo, xix., 627 pp. 










elsewhere,^ and whose influence is seen in the recent reforms 
of Dutch taxation described in another chapter of the present 

To mention only the Italian and the Dutch works would 
by no means exhaust the literature of value to the economist 
among the less well-known continental nations. Even in 
the Iberian Peninsula there are signs of renewed scientific 

The Portuguese work of Pereira Jardim on the Science 
of Finance ^ interests us more from the standpoint of fiscal 
practice than of fiscal theory. Not that theoretic discussions 
are absent from his book or without ability ; but as the work 
is posthumous, based on lectures delivered several years 
ago, the field of discussion does not include the newer 
theories of the last decade or two. Leroy-Beaulieu and 
Parieu among the French, Rau and Jakob among the Ger- 
mans are the latest foreign authors discussed. Pereira 
Jardim does not really add anything to theory ; but the 
history and description of Portuguese public finance, and 
the continual references to the inter-relations between 
Portuguese law and economics will be welcome to the stu- 
dent of comparative finance. 

On the other hand, the two-volume work of Professor 
Piernas-Hurtado of Madrid, entitled Treatise on the Public 
Economy ^^ is interesting in many ways. Like the Italians 
and the Dutch, the Spanish writers have profited by recent 
foreign investigation, and treat many of the problems from 
the newer point of view. Piernas-Hurtado, while quoting 
liberally from Wagner and the other Germans, does not fear 
to take issue with them occasionally and preserves his own 

1 Cf, my work on Progressive Taxation^ pp. 140-145, 182-189. 

2 Supra, pp. 322-330. 

» Principios de Finam^as, gusendo as Prelec^Oes feitas pelo lente da Facul- 
dade de Direito. Antonio dos Sanctos Pereira Jardim. Quarta edigSo. 
Coimbra, Imprensa da Universidade, 1891. — 8vo, 395 pp. 

* Tratado de Hacienda Publica y Examen de la Espanola. Por Jos^ M. 
Piernas-Hurtado. Cuarta edicion. Madrid, Gin6s Hem&ndez, 1891. — 8vo, 
640, 677 pp. 



individuality. This we notice not alone in questions of 
theory, but in problems of practical politics. 

The introductory chapter, on the history of the science, 
is valuable as calling attention to numerous Spanish writers, 
not alone of the seventeenth century when Spanish litera- 
ture was still almost at the flood, but also of more recent 
times. The author points out the causes of the essen- 
tially individualistic trend of the nineteenth-century Span- 
iards, and the socialistic reaction of more recent years. 
The general features of the development are the same in 
Spain as in almost all the other European countries. Like 
some of his German models, Piernas-Hurtado devotes a num- 
ber of chapters to the conception of the state, to economic life 
in general, and to the economics of the state in particular. 
He looks on public expenses as public consumption, but 
gives us here almost nothing but platitudes. When we 
come to public revenues, however, it is different. He 
classifies these according as they arise from gifts, fiscal 
domains, public works, fiscal monopolies, taxes, eminent 
domain, fines or escheats ; and devotes several chapters to 
each of the important classes. The most noteworthy point 
in his treatment of taxes is his view as to the basis of taxa- 
tion. He discusses in turn expense, income and property, 
as bases, and finds each of them essentially defective. The 
really equitable basis of taxation he finds to be faculty, or 
the economic position of the individual as shown by his 
"liquid assets " {el impuesto sohre loa haheres liquidos). By 
this term he wishes to denote the means of the individual 
as conditioned by his needs, or the proportion between 
income and property on the one hand, and the claims made 
upon him by expenses on the other. Piernas-Hurtado thus 
simply attempts to put into plain language the marginal 
utility theory of taxation, as developed by recent Dutch 
and Austrian writers. He confesses that this alone will 
not remedy social evils, that it is not susceptible of an 
exact mathematical computation, and that it may give rise 
to arbitrariness ; but he maintains that the other suggested 






!■■ t 



bases of taxation disclose the same or greater defects. 
Regard for the individual position of the contributor is in 
his opinion the really important consideration. The vague- 
ness of this test as a practical programme of taxation will 
at once strike the reader ; but Piernas-Hurtado is content 
to leave the discussion in the field of theory. 

In treating of the various classes of taxation, he later 
makes many good and practical suggestions. The whole 
of his second volume is in fact devoted to the history and 
criticism of the state, local and colonial public finance of 
Spain; and he clears up much that Parieu and other 
writers have failed to explain. Like so many of the con- 
tinental tax reformers, he sees the greatest promise of im- 
provement in the substitution of direct for indirect taxes, 
and he devotes a considerable portion of his work to the 
proposed adjustment of the Spanish public revenues to the 
principles of uniformity and universality. Several chapters 
on the theories and practice of public credit, and especially 
on the budget and financial administration, conclude a work 
whose open-mindedness, clearness and wide range of view 
entitle it to an honorable place in the list of text-books of 

rV. Switzerland. 

Switzerland is the only European country where the 
general property tax still plays an important role. It 
is the one state whose methods of taxation bear a close 
resemblance to those of the United States. It would, there- 
fore, be reasonable to expect that a work of such .pro- 
digious proportions as that of Professor Schanz on Taxa- 
tion in Switzerland in its Development since the Beginning 
of the Nineteenth Century ^ should be of the utmost impor- 
tance to all Americans ; and this expectat.on is realized. 

^ Die Steuern der Schiceiz in ihrer Entwickelung seit Beginn des 19 Jahr- 
hunderts. Von Georg Schanz. Stuttgart, J. G. Gotta Nachfolger, 1890.— 
5 vols., large 8vo, 384, 487, 383, 289, 489 pp. 



Rarely in the history of economic literature has a work 
been published which is at all comparable to this in its 
value to the American student of finance. 

Professor Schanz earned his reputation by the thorough 
work displayed in his Englische Handelspolitik gegen Ende 
des Mittelalters, published some fourteen years ago, as well as 
by several minor works on the history of labor. In 1884 he 
started the Finanz-Archiv^ which is still the only serious 
review devoted exclusively to the science of finance. In 
this periodical he has been publishing for the past few years 
detailed histories and descriptions of the tax systems of 
different German commonwealths, which have challenged 
admiration for their solidity and accuracy. Now he offers 
to the scientific world a work which stands unequalled in 
magnitude of scope and detail of treatment. 

A word first as to the methods of the author. The opening 
volume is devoted to a sketch of the general development of 
Swiss taxation. A preliminary chapter treats of the federal 
taxes and of the general situation ; a second chapter, of the 
general direct taxes in the cantons ; a third chapter, of the 
licenses, succession duties, military tax, etc; a fourth chapter, 
of the indirect taxes on consumption ; while a final part is de- 
voted to the questions of local taxation. The three following 
volumes take up each of the twenty -five separate cantons in 
detail ; describe the history, not only of all the changes, 
but of all the attempted reforms ; and close with a minute 
statement of the existing condition in each. The fifth and 
final volume contains the text of all the important tax laws 
and administrative ordinances for each canton since the 
beginning of the century. It will be seen at a glance how 
stupendous must have been the labor necessary to complete 
such a task. 

Let us now endeavor to ascertain in what respects the 
work is important to Americans. Professor Schanz begins 
by accepting the theory advanced by the present writer 
regarding the historical development of taxation and the 
position of the general property tax in this development. 






'I 'i 




He shows that Switzerland, like the United States, has 
retained the mediaeval property tax up to this day ; but he 
further shows that Switzerland, unlike the United States, 
has successfuUy endeavored to reconstruct its property 
tax and to supplement it by another system which has 
brought it more into harmony with the needs of the present 
century. The conception of general property as the basis 
of taxation has been permeated, gradually but with ever- 
increasing rapidity during the past thirty years, with the 
ideas of product and of income. The attempt to realize 
the principle of ability to pay has resulted in dissatisfaction 
with the old property tax and a remodelling of the whole 
system. The methods in the various cantons may be 
summed up as follows : (1) a property tax plus a general 
income tax ; (2) a property tax plus a partial income tax ; 
(3) a property tax plus a supplementary income tax, in 
the sense that only the surplus income above a certain 
percentage, supposed to represent the interest of the taxable 
property, is assessed ; (4) a real property tax plus a general 
income tax. Only three of the smaller cantons still hold to 
the general property and the poll taxes ; while only one 
canton clings to the once universal, but still more primitive, 
system of the land tax. 

This is the one great lesson to be drawn from Swiss 
experience. It ought to be sufficient to silence all those 
enthusiasts who cry out for a retention of the present Ameri- 
can system, and point with triumph to the only democratic 
republic in Europe as practising the same methods. On the 
contrary, the one great effort of the Swiss legislatures during 
the past half-century has been to supersede the general 
property tax, not necessarily by the income tax, but by some 
form of income taxation — by some system which, directly or 
indirectly, makes not property, but product, the basis of taxa- 
tion. As Professor Schanz sums it up : " Ueberall drangt 
sich eben mit elementarer Gewalt der Gedanke durch, dass 
es doch nicht das Vermogen, sondern das Einkommen ist, 
welches man eigentlich treffen will." 



Let us now leave this main fact, which might amply serve 
as a text for a whole volume, and turn to some of the other 
points of interest. The author does not discuss the question 
of taxation of corporations as a whole, but presents the facts, 
the most important of which have been used in another chap- 
ter of the present volume. Other points upon which the 
Swiss experience is extremely instructive are the different 
rates of taxation for various kinds of property ; the methods 
of assessment, according to market value, insurance value 
or par value ; the exemption of church or other property ; 
the distinction between funded and unfunded income ; 
and the subject of double taxation in all its various forms. 
But the four chief points which deserve special emphasis 
are these: the methods of controlling assessments, the ques- 
tion of progressive taxation, the succession taxes and the 
system of local taxation. 

Switzerland, like the United States, has tried all forms of 
assessment for the general property tax — self -assessment 
and official assessment, oaths and no oaths, publicity and se- 
crecy ; and these have proved equally inefficient. One insti- 
tution, however, has been developed in the last few decades 
that is peculiar to Switzerland. It is that of the inventory 
{Inventari^ation). As soon as a taxpayer dies, his entire 
property is seized by the government and held until an 
exact inventory is made. If this discloses fraud in the 
previous self-assessments, punitive taxes must be paid, 
ranging in some cantons over a period of ten years. This 
method of control is based on the right idea ; but it has 
its objectionable sides. It must be distressing, to say the 
least, to the family of the deceased when the tax officials 
clap their seals on the property, as it were in the very cham- 
ber of death. It has also its weak sides, for those who have 
even a short time to prepare for death commonly give away 
a large part of their property. Again, the inventory natu- 
rally becomes a less trustworthy guide the further back we 
go, so that at its best it can serve only as a partial index. 
But notwithstanding these defects, it has done good service 





in increasing the tax receipts, and it forms to-day one of the 
chief subjects of dispute in the Swiss cantons. 

Another point which has attracted attention is that of 
progressive taxation. Switzerland has now definitively 
accepted the principle of graduated taxation ; and the can- 
tons apply it not only to inheritance and to income taxes but 
also to property taxes. Especially since 1870, a large ma- 
jority of the commonwealths have inserted the principle into 
their constitutions, and only a few constitutions fix the 
limit of the progression. The system, far from causing 
any wholesale exodus or any such startling confiscation as 
we read of from time to time in the newspapers, has proved 
so satisfactory that, wherever tried, it has never been aban- 
doned. There also, Switzerland is not at one with the United 

Thirdly, about two-thirds of the Swiss commonwealths have 
rounded out their system of direct taxation by taxes on in- 
heritances and on bequests. This movement is an old one, 
and has gone hand in hand with the movement to supple- 
ment the property tax by an income tax. The United States 
are still in the first phases of the reform; for until very 
recently the agitation was confined to an extension of the 
collateral inheritance tax. Switzerland has passed beyond 
this phase, for its system applies to all inheritances and 
bequests, with a rate ranging from a fraction of one per cent 
in Zug, to as much as twenty-five per cent or even more for 
non-relatives in Uri. 

Finally, the methods of local taxation are instructive. 
Only a few cantons pursue the same system for both local 
and commonwealth purposes. In most cases the income 
tax is a commonwealth tax, while the local tax is a prop- 
erty tax, and often a real property tax. In addition to 
the local property tax, however, we find very generally a 
local " household " tax, which is practically a system of poll 
taxation designed to reach some of those who escape the real 
property tax. The local tax system is moreover marked by two 
significant facts. In the first place, the idea of progression, 



which is commonly applied to the commonwealth taxes, is 
absent in the local taxes, which are almost uniformly pro- 
portional. Secondly, the exemption of debts — mortgage 
debts as well as others — is permitted in state taxes, but is 
allowed only to a very limited degree in local taxes. 

Enough has been said to show the importance of Professor 
Schanz's work. It does not pretend to discuss questions of 
theory, and yet almost every page contains matter of more 
significance to the average American than whole chapters of 
some of the usual manuals of finance. In some few ques- 
tions of finance Switzerland has a little to learn from us ; 
in most matters we have important lessons to learn from 
Switzerland. What these lessons are has been only faintly 
outlined in the above remarks ; but it is to be hoped that 
their full significance will erelong be appreciated by every 
American student and by every American legislator. 

V. England, 

English economic literature has not hitherto been very fort- 
unate in its systematic studies of fiscal problems. The writ- 
ers prior to Adam Smith concerned themselves only with 
scattered questions of temporary practical interest, and dealt 
with them in the same scrappy manner which characterized 
their treatment of economic problems in general. There 
was, in England at all events, no true science of political 
economy; there could not well be a science of finance. 
Adam Smith, taking his cue, perhaps, from the French 
writers, for the first time sought to connect fiscal questions 
with those of social economy. In his happy way he com- 
bined the abstract discussion of fundamental theories with 
the explanation and criticism of actual conditions, avoid- 
ing on the one hand the metaphysical vagaries of the 
Physiocrats and on the other the plodding monotony of the 
German " cameralistic " compilations. But while Adam 
Smith gave a decided impulse to the study of fiscal prob- 
lems on the continent, and thus initiated a movement which 






has resulted in the elaboration of the modem science of 
finance, his success in rousing a like interest in England was 
far less marked, although his influence on English fiscal prac- 
tice was great. The mighty genius of Ricardo, however, 
turned at once to the core of the problem. He confined him- 
self almost exclusively to an investigation of incidence, re- 
garding a tax simply as an addition to the cost of production 
and treating all tax phenomena as mere illustrations of 
changes in value. Taxation with him became a minor part 
of general economic theory. So weighty was his influence 
that even Mill, who in other parts of his Political Economy 
pursued a quite different policy, gave in his fifth book noth- 
ing but a succinct analysis of the shifting and general effect 
of taxation, scarcely deigning to descend to the facts of every- 
day life or to do more than touch upon the difficult details of 
principle. Although a few other writers did more than this, 
their discussions were forgotten amid the plaudits showered 
on Ricardo and Mill. Thus it happened that, while on the 
one hand we had numerous descriptive works, written for 
practical purposes, on the chief facts of public finance, and 
on the other hand numerous appendices to general treatises 
on economics, dealing with a few points in fiscal doctrine, 
there came to be an almost complete divorce between fact 
and theory. The practical writers did not concern them- 
selves with theory, and the economists were for the most part 
content to work in what might be called a fiscal vacuum. 
McCulloch was the one important writer to form an excep- 
tion, and he was not sufficiently successful to find either 
admirers or successors. 

Another reason which may be adduced to explain the more 
rapid growth of the science of finance in France and in Ger- 
many was their relatively inferior fiscal system. It is not 
the excellence but the defects of economic life that have 
always led to the elaboration of economic theory. The 
shortcomings of mercantilism produced Adam Smith; the 
abuses of the ancien rSgime brought forth the Physiocrats ; 
the dangers of levelling and the evils of the poor law gave 



us Malthus ; the currency confusion and the corn laws were 
responsible for Ricardo. Had there been no agricultural, no 
industrial, no commercial troubles, we should not have had 
Mill and the whole host of modern specialists. So with the 
problems of public finance. The abuses on the continent 
were so serious that they gave rise to important political con- 
tests, and thus led the scientists to attempt a general clearing 
up of vexed questions in fiscal policy. In England tax prob- 
lems (with the exception of the free-trade controversy, which 
was far more than a mere matter of taxation) did not agitate 
the people to any great extent, and their solution was con- 
tentedly left to the practical common sense of the English 
statesmen. It is significant that in the one department of 
public finance which did seriously enter into politics, namely, 
that of public debts, the English writers have done better 
work than those of the continent. But the comparative 
excellence of the English revenue and budgetary system, 
combined with the general prosperity, in themselves contrib- 
uted to hinder the growth of fiscal theory. 

Of late years the conditions have changed. The dispro- 
portionate increase in public expenditures and the immense 
development of local needs have materially strengthened the 
consciousness of fiscal pressure, while the growth of democ- 
racy on the one hand and the complications of recent indus- 
trial development on the other have brought to the front 
questions of theoretic justice which necessitate the revision 
of fundamental doctrines. In England as in America, fiscal 
problems have become no less important than in continental 
Europe. It is thus natural to expect henceforth a deeper 
study of the subject-matter by those who in the wilder- 
ness of confusing party contests blaze out the path of truth 
and progress. 

Professor Bastable's book on Puhlic Finance ^ is the first 
scientific result of this new interest in fiscal problems in Eng- 

1 Puhlic Finance. By C. F. Bastable, LL.D., Professor of Political Econ- 
omy in the University of DubUn. London, Macmillan & Co., 1892. — 8vo 
XX., 672 pp. * 






! I 



land. His volume marks a distinct epoch in the history of 
English economics ; for it is the first attempt to set before 
English readers the science of finance in its modern garb. 
To many it will introduce an entirely new set of discussions; 
and especially to the English reader who is not familiar with 
foreign tongues, the volume will be welcome. This will be 
our excuse for dealing with it so fully. 

To all those acquainted with the Theory of International 
Trade^ published a few years ago, as well as with his recent 
Commerce of Nations, Professor Bastable is known as a clear 
and careful thinker, without any intellectual vagaries, and 
with marked sobriety of judgment. The same traits con- 
spicuously reappear in the present volume, and they are re- 
inforced by evidence of accurate scholarship and familiarity 
with foreign literature. In order to be sure of one's own 
conclusions, one must first know what others have said ; 
and it is the neglect of this elementary rule that consigns 
so much of so-called scientific writing to the waste-basket. 
It must not be supposed, however, that Professor Bastable 
is a slavish adherent of his foreign predecessors. His 
volume is by no means without independent suggestions; 
and it is precisely this independence of thought that invites 
occasional criticism. 

In the first place, it is to be regretted that Professor 
Bastable does not employ the term "science of finance." It 
is true that " finance " is used in English to include private 
as well as public finance, and that several books on " finance," 
like those of Jevons and Giffen, deal chiefly with monetary 
problems. This unclearness, however, attaches to the word 
in foreign languages to almost the same degree. The French 
speak of la haute finance, and the number of titles on what 
might be called " private " or " monetary " finance is legion ; 
yet this has not prevented them from using the phrase science 
de finance or science des finances, as the technical term for pub- 
lic finance. The whole matter was there discussed and laid to 
rest years ago by Joseph Garnier. In Italy and in Germany 
the matter of terminology has reached a similar settlement. 



It is therefore to be deprecated that Professor Bastable should 
not have pre-empted the phrase for English scientific use. 
Sooner or later we shall have to conform to the usage of the 
French and the Italians. 

The introductory chapter on the history of the science 
gives a clear picture of the main lines of development. Some 
mention might, perhaps, have been made of the discussions in 
mediaeval Florence, which in some points foreshadow modern 
doctrines. Moreover, if a fuller history of the science in 
England is ever written, attention will have to be paid to 
writers to whom may be traced much of what is to-day cur- 
rent coin in fiscal discussions. To speak only of nineteenth- 
century authors, Frend, Craig, Buchanan, Buckingham and 
Sayer will be able to hold their own with many of the Ger- 
man writers whom their compatriots delight to honor. 

An important point iTn which the volume differs from some 
others is the inclusion of the subject of public expenditures. 
It is a difficult and delicate task rightly to proportion the 
space to be devoted to this topic in a work on finance. 
From one point of view public expenditure is simply adminis- 
tration : from another point of view it is political economy in 
the original sense of the term. How far government should 
assume definite functions is a problem of economic politics ; 
in what manner it should actually carry on these functions 
is a problem of administration. Yet almost every political 
or administrative act involves some outlay, and is in so far a 
fit subject for discussion in systematic works on finance. 
Professor Bastable, in dealing with this branch of his work, 
has avoided on the one hand unsuitable details, and on the 
other mere commonplaces. 

It is in the next three books that are to be found most of the 
controverted doctrines, and it is naturally here that the critic 
will be apt to take issue with the author. Professor Bastable 
first takes up the classification of public revenues. He sees 
the inadequacy of the older continental division into taxes 
and lucrative prerogatives (regalia) and correctly relegates 
the latter class to the limbo of iiherwundener Standpunkte. 


I I' 

1 1< 



But he is equally aggressive in his onslaught on the class 
of "fees," the creation of which he ascribes to "a want of 
analytic power in the originator." He simply distinguishes 
between taxes and what he calls in some places "semi-private 
economic income," and in other places "public economic 

It will be questioned whether Professor Bastable is not 
here taking a step backward. He shows, it is true, the 
many inconsistencies of recent writers. But does it not 
seem unwise to cut the knot in despair of untying it? 
In refusing to acknowledge fees as a separate class, the 
author only creates fresh difficulties. Where, for instance, 
shall we put school fees? They are surely not industrial 
income; and Professor Bastable himself would not class 
them among taxes. And where shall we put the charges 
for marriage certificates, and sheriff's fees, and copyright 
payments, and a host of other similar receipts ? The author 
later speaks repeatedly of " economic receipts " as different 
from fees, as well as from taxes, seeming to forget that in 
the earlier portions of the volume he includes fees in the 
"economic receipts." Further, why speak so frequently 
later of the " fee principle " as opposed to the " tax principle," 
if fees do not form a separate class ? 

Again, Professor Bastable sharply separates economic from 
compulsory receipts ; but he fails to distinguish between 
different kinds of compulsory receipts, and assumes that 
all of them are taxes. Where, then, shall we put fines and 
penalties ? They are certainly compulsory receipts, and just 
as certainly not taxes. Where, too, shall we put special 
assessments, which are completely ignored by him ? In fact, 
it almost seems as if the author, in the endeavor to simplify 
matters, has really added to our difficulties. 

A similar criticism may be urged against his classification 
of taxes. He objects to all the recent methods, and reverts 
to what is virtually Adam Smith's classification into primary 
and secondary. But it is hard to see why a tax on the 
property of a living person should be primary, and that on 



the property of a deceased person, in the shape of an inherit- 
ance tax, secondary ; or why a tax on the business of a cor- 
poration should be primary, and a tax on the receipts of a 
corporation secondary. It may also be noted that, when he 
calls attention to the distinction between direct and indirect 
taxes made by practical " financiers," his statement applies 
only to French, not to English or to American practice. 

The book on the whole exhibits independent judgment, 
although in a few instances the author allows his German 
models to influence him unduly in matters of nomenclat- 
ure. Thus he introduces the German distinction between 
the "object" and the "subject" of taxation, meaning by the 
former the thing on which, and by the latter the person on 
whom the tax is imposed. This is not English. When we 
speak of the subject^of taxation, we mean not the taxpayers 
(or "subjects," in Professor Bastable's language) but the 
phenomena subjected to taxation (or "objects," in Professor 
Bastable's language). And when we speak of the objects 
of taxation, we commonly mean the aims of taxation, 
not the things taxed. In other words, the author's 
(German) "tax object" is really the English "subject"; 
and his "tax subject" is the English "taxpayer" or "tax- 
bearer," as the case may be. Again, the terms "forward 
incidence," " backward incidence," and " diffused incidence " 
are not English ; moreover, they confound the terms inci- 
dence and shifting. Finally, when Professor Bastable em- 
ploys the word "rated" tax as opposed to "apportioned" 
tax, he is ignoring the equivalent term, " percentage " tax, 
which has become quite common, and which clearly expresses 
the meaning on its very face. 

But all these matters, it may be said, are of minor impor- 
tance. The crucial point is not so much the arrangement 
and terminology as the substance, and in the substance of 
the book the author must meet with greater appreciation. 

Passing over the chapters on the state domain, the 
industrial domain, and the state as capitalist, in which 
he always seeks to maintain the golden mean between 





[ ! 





the laissez-faire theories of the earlier English writers and 
the semi-socialistic doctrines of the modern German au- 
thors, we come to the more difficult problems of taxation. 

A good account is given of the theory of benefit, which is 
discarded as the general basis of taxation; but less satis- 
factory is the discussion of the theory of faculty. Professor 
Bastable speaks of its "convenient vagueness," but does 
not really make any serious effort to give a deeper analysis 
of the doctrine. He tells us of Mill's doctrine of *' equal 
sacrifice," but does not succeed in correlating it with the 
doctrine of ability. His whole discussion of the theory 
of progressive taxation is therefore not quite up to the 
level of recent investigation. On other points, too, he 
is very conservative. He opposes the differentiation of the 
income tax, which was demanded by Mill and accepted by 
Disraeli ; he seems to be opposed to graduation in the inheri- 
tance tax, which was also demanded by Mill and which has 
now been definitively introduced into English practice ; and 
he even differs from the conservative French writers in dis- 
approving of progression in the income tax as a counterpoise 
to regression in other taxes. 

On the other hand, the discussion of the incidence of taxa- 
tion is good. The author shows the weakness of both the 
diffusion theory and the absolute theories of Smith and of 
Ricardo, and calls attention to the complicating conditions of 
modern society. It might be urged that his analysis is not 
rigorous enough in the case of the taxation of profits; that not 
enough attention is called to the distinction between monopo- 
lies and competitive undertakings; that the house tax is viewed 
only from the characteristically English point of view as being 
assessed on the occupier ; and that the general capitalization 
theory is not brought into due prominence. Nevertheless, 
the treatment as a whole is far superior to that found in 
most of the manuals on public finance. 

Perhaps the least satisfactory part of the work is the dis- 
cussion of universality of taxation. Double taxation, as we 
know, is of importance chiefly in federal states ; and that 

\ I. 



is no doubt the reason why a book written primarily for 
Englishmen pays so little attention to it. But international 
relations are here of increasing importance and deserve 
more than the half -page allotted to them. Moreover, the 
conclusion itself is not beyond criticism. " The more modern 
solution," he says, " would be that the income tax should be 
levied by the country of residence, the land or property taxes 
by that of situation." What, then, shall be done if the income 
is derived from land; or, conversely, if the property consists 
of intangible goods ? Whatever we say about this, it is to be re- 
gretted that the author passes over the other forms of double 
taxation. Even if there were no space for details, the main 
points of the controversy should at all events h?ve been 

The following book, on the several kinds of taxes, shows 
the author at his best. A broad knowledge of the facts of 
taxation in all the important countries, and a wide acquaint- 
ance with the special literature, enable him to give a concise 
and clear account of actual conditions, as well as of the chief 
movements for reform. He suggests a judicious combination 
of the three principal forms of taxation as best calculated to 
reach substantial justice. 

So far as the practical problems of American taxation are 
concerned. Professor Bastable opposes the suggestions for a 
direct income tax to replace the local tax on personal prop- 
erty, and he also deprecates the taxation of gross receipts 
of corporations. His statement that " the most promising 
sources of state revenue seem to be the real property and the 
license taxes " is, however, obviously a slip. Americans will 
also take exception to the assertion that " taxation of inheri- 
tances is unsuited for a community where the family is the unit 
of society and property is really held by corporations, not by 
individuals." There is an obvious discrepancy between this 
and the author's statement that " taxation of corporations is 
the taxation of their members." This last statement again 
is unclear. Do the "members" of a • corporation mean its 
stockholders, or its bondholders, or both? The discussion 


• j 



/' I 




of these questions, which have led to some of the most per- 
plexing problems of public finance in America as elsewhere, 
ought not to be so lightly "eliminated." 

We have not hesitated to call attention to some of the 
minor defects in Professor Bastable's volume or to indicate 
a belief that it will not be found wholly satisfactory for the 
American student. We must, however, remember that it 
was written primarily for Englishmen. It is to be hoped 
that no one will leave these criticisms with the idea that 
the book can be lightly cast aside. It is so admirable in 
arrangement, so accurate in statement, so catholic in temper, 
so sagacious in judgment, and so broad in erudition, that it 
will undoubtedly give a new impetus to the scientific study 
of fiscal problems in England. 



The history of official attempts to reform the systems of 
state and of local taxation in the United States may be divided 
into two periods, the one comprising the decade almost im- 
mediately after the completion of the Civil War, the second 
including the last ten years. During the earlier period taxa- 
tion was light, and th§ tax methods were not yet out of touch 
with the comparatively undeveloped industrial conditions. 
The only report deserving of mention was that of Connecti- 
cut in 1844, which treated of some minor points. But after 
the close of the war, the rapid advance in industry and 
commerce made the defects of the existing system more 
easily apparent, thus leading to a more extended discussion. 
The earlier New York report of 1863 had contented itself 
primarily with collecting facts and statistics ; but beginning 
with 1867, the Eastern states, like Pennsylvania, New York, 
New Jersey and Connecticut, in rapid succession offered 
suggestions for removing some of the evils which were then 
beginning to be felt. 

I. New York and Massachusetts. 

The most comprehensive of these earlier documents is the 
well-known double report issued by New York in 1871-72, 
and written chiefly by Mr. David A.Wells. This may really 
be called the starting-point in the discussion of modern Amer- 
ican problems. Not only did it contain an immense mass of 
information as to actual facts, but it gave an account of the 
prevalent legal conditions, which is exceedingly valuable 
even to-day. Above all, it attempted for the first time to 











lay down certain guiding principles. The two practical ques- 
tions to which the report primarily addressed itself were the 
taxation of personal property in general and of indebtedness 
in particular. It took the position that in order to tax equi- 
tably and uniformly, it is not necessary to tax everything ; 
and it proposed to replace the existing tax on personalty by 
a taxation of house rent on the occupier. 

Important as was its treatment of practical problems, and 
indispensable as it is to all present-day students, the value 
of the report is somewhat impaired by two defects in theory. 
In the first place, Mr. Wells, like almost all of the English 
and American economists of the period, was an energetic 
upholder of the benefit theory of taxation — the doctrine 
that the taxes due from each individual are merely the price 
paid for the protection which government affords him. 
Secondly, Mr. Wells espoused the general diffusion theory, 
maintaining, as did Thiers before him, that "all taxes tend 
to equate and diffuse themselves with unerring certainty 
and equality."^ It was not necessary for Mr. Wells to take 
this position, for many of his practical conclusions might 
have been upheld on other grounds. 

The second important report of this earlier period is the 
Massachusetts report of 1876, which took issue with the New 
York commission on these two points. The theory of protec- 
tion was shown to be inadequate and untrue ; and for the first 
time in any American official document the doctrine of fac- 
ulty was vigorously defended. The general diffusion theory 
was denied, and some strong arguments were presented in 
opposition. In these respects, it is unquestionable that the 
Massachusetts report is more in harmony with modern ideas 
than are the two New York reports. 

As regards the practical question at issue, however, the 
Massachusetts commission sought to uphold the existing sys- 
tem. The objections to the New York proposals were those 
which have always been urged, and which will always be 

1 For a criticism of this doctrine, see my work On the Shifting and Inci- 
dence of Tazationt chap, i., sec. 4« 


urged, against any plan simply to exempt personal property 
from taxation. To confess that the tax on personalty is a 
failure is one thing ; to urge the repeal of the personal prop- 
erty tax without offering an adequate substitute is quite 
another thing. What the New York commission did was 
to suggest a partial substitute in the shape of a tax on 
rentals. This was a good suggestion, as far as it went, 
but it alone would not suffice. The Massachusetts report 
discerned this shortcoming ; but because the commission 
did not see its way to expand the suggestion or to propose 
some additional substitute, it threw over the whole New 
York plan and maintained the adequacy of the existing 
system. This was illogical. The Massachusetts report, with 
all its clear and able discussions, must therefore be declared 
distinctly inferior, for all practical purposes, to its prede- 

With the New Hampshire report of 1876, which followed 
in the main the recommendation of the New York commis- 
sion, the first period may be said to come to a close. For the 
next ten years the interest in the matter seems to have slum- 
bered. In 1880 New Jersey, and in 1884 West Virginia, did 
indeed issue reports ; but their treatment of the subject was 
not strong and their influence was slight. 



II. Illinois and Maryland, 

The second period, which began with 1886, brought with 
it new problems. In addition to the former questions of the 
taxation of mortgages and of personal property in general, the 
public was now beginning to consider the relations of local 
to state revenue, the growing intricacies of interstate taxa- 
tion, and the questions connected with the newer forms of 
taxation like the corporation tax and the inheritance tax. 
The whole discussion was fast becoming more complex. 

The Illinois report of 1886, although slight, is important for 
one step in advance. It advocated a complete divorcement 
of state revenue from local revenue. As the only way to 
2d / 


i ' 


It \ 




.avoid the evils of the system of equalization, the commission 
suggested that the property tax be confined to the local 
bodies, and that the state revenues be secured from a system 
of corporation taxes. The plan was not thoroughly worked 
out ; but the fruitful idea of separation or segregation of 
sources of revenue was urged. This was indeed not absolutely 
new, for the New York state assessors had already advanced 
the same plan during the preceding decade ; but we now 
find it worked out for the first time in the history of oflScial 
commissions. The limitation of the general property tax or, 
still better, of the real property tax to the use of the local 
bodies is a good plan, if only for the reason that it generally 
is an apportioned tax ; for apportioned taxes are never suita- 
ble for state purposes. Everywhere throughout the United 
States, as in Europe, there exist two methods of levying 
taxes. According to the first method, state taxes are 
assessed by state officers, in given lump sums of so many 
thousand dollars upon each county, and the county then 
divides this lump sum among the ratables. According 
to the second method, the state officers simply fix upon 
a certain quota or percentage, which is to be imposed 
on every hundred dollars of property throughout the state, 
as valued by the local assessors. In the apportioned taxes, 
the yield of the tax depends on the quotas of the indi- 
viduals ; in the percentage taxes, the quotas of the individ- 
uals depend on the amount to be raised. In most of the 
American commonwealths the property tax is apportioned, 
and the consequence is seen in the crying inequalities 
between the counties and in the crude contrivances of 
boards of equalization. Were the real property tax to 
become local, as is now the case in England and in Prus- 
sia, we should escape the inequalities and the makeshifts 
of boards of equalization with which we are so familiar. 
The same difficulty confronts France with her general land 
tax. The project of separating local from state revenues is 
hence a good one ; and for this suggestion the report will 
always remain noteworthy. 


Two years later, the Maryland report was issued. The 
Maryland commission had the good fortune to number among 
its members a student who had given considerable attention 
to the theory of finance, and who was acquainted with the 
history and actual practice abroad as well as at home. 
Professor R. T. Ely not only succeeded in inducing the 
commission to accept some noteworthy amendments, but 
added a supplementary report of his own, in which many 
interesting and valuable ideas are to be found. 

The report proper points out that the Maryland system of 
direct taxation possesses some advantages over those of 
neighboring states. The assessors are appointed, thus min- 
imizing the danger of improper influences ; the assessments 
are made by county officers, thus avoiding petty jealousies 
and efforts to reduce the assessments of localities ; and the 
same basis is used for state and county taxation, so that 
no county can reduce its assessments without reducing its 
own resources. The disadvantage of the Maryland system 
in general is that there are no periodical assessments. But 
the one defect which Maryland discloses in common with 
other states is the inadequacy of the personal property tax. 
Although its failure is notorious, the commission contented 
itself with the proposal to exempt the book accounts of mer- 
chants when the stock on the shelves is assessed. Professoi 
Ely, in his supplementary report, went further, and advocated 
a total exemption of personal property, which would necessi- 
tate a change of the constitution. The chief proposals of 
this supplementary report are : the exemption of real estate 
from state taxation ; taxes on corporations and an income tax 
as the chief sources of state revenue ; a tax on real property 
and a tax on the rental values of places of business as the 
chief sources of local revenue. 

In this scheme there are several points to be noticed. The 
plan of separating the local and state revenues has just been 
discussed. The proposition of an income tax is open to more 
question. Many of our tax reformers recommend the entire 
exemption of personal property. That in itself, however, Li 






not sufficient; for it would simply result in an undue burden 
on real estate. Some form of income taxation is necessary 
in order to reach those who would otherwise go untaxed; 
but whether this should take the shape of a direct tax 
on income is far from certain. At all events the discus- 
sion in the report is not by any means full enough. Fur- 
thermore, even granting the expediency of an income tax, 
it is questionable whether it should be a state or a local tax. 
The argument against the income tax as a local tax is that 
it might lead to a loss of business or of population ; but the 
same objection may be made to a state income tax when com- 
pared with a national income tax. The mere proposition of 
an income tax brings up a host of questions which the report 
does not attempt to treat. Again, the recommendation for 
the taxation of railroads through gross receipts according to 
the Wisconsin license fee system appears to be a mistake, 
since the just basis of corporate taxation, as of taxation in 
general, is net earnings. The gross earnings tax, as we have 
seen, is like the tithe on lands ; it bears no proportion to 
the ability of the taxpayer, because it takes no account of 
expenses. The most significant parts of the supplementary 
report, it may be said in conclusion, are the criticism in 
detail of the practice of the general property tax, and the 
elaboration of the idea of utilizing for sources of municipal 
revenue what Professor Ely terms the natural monopolies.^ 
Appended to the report is an interesting, but anonymous, 
historical sketch of taxation in Maryland. 

m. Maine and PennBylvania. 

Partly as a result of this able Maryland report, but chiefly 
as an outgrowth of the discontent now manifested in other 
sections of the country as well, tax commissions soon mul- 
tiplied. During the next few years reports followed each 

1 Professor Ely's supplementary report was subsequently reprinted with 
additions, and published as his well-known work on Taxation in American 
States and Cities. 


other in rapid succession. As they all belong to recent history, 
it may be well to discuss them somewhat more in detail. 

In 1890 the Maine tax commission issued its report. 
This is valuable for its facts as to the tax system. The 
tables give a digest of the legal provisions of the most im- 
portant states on the listing system, equalization, the poll 
tax, the dog tax, and the taxation of railways, insurance com- 
panies and savings banks. Some of the tables, however, are 
exceedingly fragmentary. The only one that is complete 
and trustworthy is that published as an appendix concerning 
the tax on insurance companies. 

As regards the report itself, not much can be said in com- 
mendation. For instance, the commissioners confessed " to 
having been compelled to acknowledge the logical soundness 
of many views advanced " by recent economists, and yet they 
say that these views " are at variance with the conclusions at 
which we have arrived." Their excuse is that it is "better 
to err upon the side of conservatism." The practical out- 
come of the commissioners' studies is that the failure to reach 
personalty may be overcome by the plan of requiring sworn 
detailed inventories of all property ; and the proposed law 
contains provisions to this effect which the commission calls 
"strong and mandatory." This is the old, old story. Per- 
sonalty escapes ; ergo, try to reach it by more rigid methods. 
Of course the result can be foretold. 

The value of the commission's ideas may be gauged by 
the knowledge displayed of the science of finance. Thus 
we find the remarkable statement that the single tax on land 
values is the system which most European countries have 
adopted. When the present writer wrote to the commission 
for an explanation, the astounding answer was sent that the 
commissioners had learned this fact from one of his own 
articles ! Again, on the very next page the commissionei-s 
confuse the single tax on land values with the tax on real 
estate. Further, in discussing the income tax (which they re- 
ject) they repeat the statement that to tax property and the 
income from property is intolerable because it would involve 



I . 






double taxation. When will our commonwealths learn to 
put the solution of such knotty questions into the hands of 
experts, instead of laymen ? 

The report is redeemed, however, by some wise suggestions. 
Thus in regard to the taxation of mortgages, it accepts in a 
large degree the contention of the present writer, although it 
quotes an entire paragraph which it erroneously credits to 
Amasa Walker, who entertained the contrary opinion. The 
practical conclusion is the recommendation of the Massachu- 
setts system, which regards the mortgage as real estate and 
divides the tax between mortgagor and mortgagee. The com- 
mission, however, seems to be ignorant of the provisions of 
the California law, which avoids some of the shortcomings 
of the Massachusetts system. In regard to new taxes, the 
commission proposes the collateral inheritance tax, a tax on 
all private and special acts passed by the legislature, and a 
slight extension of the corporation taxes. Some of these 
proposed changes have since been adopted. 

Of more importance are the papers contained in the re- 
ports of the Pennsylvania revenue commission of 1890. 
Pennsylvania is the only state in the Union which has 
seriously grappled with the problem of reaching the abilities 
of those that receive a revenue from other elements besides 
real estate. Her revenue laws of the last fifteen years have 
put her easily into the front rank of the American common- 
wealths. Yet just because so much progress has been made, 
the demand for further reform is stronger in Pennsylvania 
than anywhere else. 

The commission of eight members was unable to agree. 
In consequence we find four separate reports, of very unequal 
value. The majority report, signed by five members, is 
the weakest, as it is the shortest. As but little attention 
was paid to this report, we may pass it by. The main 
point of the majority, who disclaimed any attempt to change 
the system of state taxation, was to improve the local system 
by compelling every person to answer a list of interroga- 
tories 'as to his personal property, and to provide for 


the publication of all details. All moneys and credits were 
to be made taxable; every obligation or other evidence of debt 
that was not returned in the assessment list was to be un- 
collectible by suit, and all interest on such debts was to be 
forfeited. In other words, the majority would institute a 
system by the side of which the most inquisitorial income 
tax ever known would be a mere plaything. To suppose 
that Pennsylvania would ever take such a retrograde step 
was to insult the judgment of her legislators. Furthermore, 
all transportation and transmission companies were to be 
made liable to local taxation in the following manner : after 
ascertaining the average value per mile of the entire property, 
each county was to multiply this by the mileage in the county 
and to lay a tax of fQur mills on the result. This plan was 
crude ; for the large cities or towns in which the property or 
terminals are of immense value would get no more revenue 
than the little villages. Average value according to mileage 
is an inequitable basis for local taxation, because some local- 
ities will get far more, and some far less, than their just 
share. ^ In short, there is scarcely a recommendation in the 
majority report which does not fly in the face of experience 
and contradict the teachings of sound finance. 

As a result, the three minority reports savagely attacked 
the majority report. The auditor-general brought in a bill, 
the main feature of which was the reduction of local taxation 
at the expense of state revenue. He proposed that the com- 
monwealth treasury should assume a further share of the 
expenses of local government, or that it should relinquish to 
the counties more of its surplus revenues ; and furthermore, 
that local taxes should be imposed on moneyed capital, on 
capital invested in business, on shares of stock in corpora- 
tions, and on gross earnings of private bankers and brokers. 

1 The objection to average value according to mileage attaches less strongly 
to state taxation because it rarely happens that nothing but the terminal is 
in a different state from the line proper, and because the question of way- 
uersMS through-traffic plays more of a role in interstate than in interlocal 









Mr. Albert S. Bolles approved of the income-tax project to 
be mentioned in a moment. His report is noteworthy for the 
few words he has to say on the tendency toward inequality as 
the result of the incidence of the property tax. He main- 
tained that the chief revenue of the state should be from 
railroads, and that most of the other subjects of taxation 
should be surrendered to the counties. 

The chief part of the report, both in quantity and in 
quality, consists of the three papers by John A. Wright. 
These papers constitute a comprehensive plan for an adjust- 
ment of the whole system of state and local taxation, and 
deserve our attention. 

As regards state taxation, Mr. Wright lays down twelve 
principles, which may be summed up in these words : a uni- 
versal income tax, without deduction for debt, without 
exemptions, without differences of rate, applied to indi- 
viduals and to firms as well as to private corporations. He 
showed that Pennsylvania practically had indirect income 
taxes already in the mercantile license taxes and the occu- 
pation taxes, and direct partial income taxes on bankers, 
brokers and certain corporations. What he desired was an 
extension and consolidation of this system. His plan is 
that the state should tax (1) the net income of corpora- 
tions with a few exceptions, (2) the amount of sales of all 
merchants, (3) the gross income of all individuals from 
trades, professions and occupations, with provisions to pre- 
vent inquisitorial proceedings. On the other hand he would 
have the local divisions tax real estate, horses, mules, oxen 
and vehicles, and levy certain licenses. 

There are many striking points in Mr. Wright's papers. 
His scathing criticism of the majority report, his apprecia- 
tion of the injustice of the property tax, his argument that 
revenue and not property should be the basis of taxation, 
his proof that an income tax is really less inquisitorial 
than a property tax, his grasp of some of the difficulties 
of interstate taxation — all these put his three papers in 
the front rank of the literature on American finance. On 


the other hand, criticisms might be made to show that Mr. 
Wright is not acquainted with the latest results of scientific 
thought. Whole subjects — such as the question of gradu- 
ated taxation, of the distinction between permanent and pre- 
carious incomes, and of many problems of double taxation — 
are entirely ignored. Furthermore, there are evidences of 
immature, or at all events of not sufficiently penetrating, 
thought — as on the subject of debt exemption, where his 
conclusions are not in accord with the better opinion ; on 
the subject of incidence, where the diffusion theory is again 
dished up ; on the protection theory of taxation ; and on the 
question of deductions from income, where the conclusions 
reached are arbitrary. But with all its faults, his report is 
one of the best official documents hitherto published on the 
subject of local finance. 

Finally, one last word of criticism. Are not the advocates 
of the income tax in this country somewhat too optimistic ? 
Do they reckon sufficiently with the opposition to its en- 
forcement, and with the probable inadequacy of its admin- 
istration ? Is it not far better as a piece of practical policy 
to present the alternative plan of what Mr. Wright him- 
self calls indirect income taxation? Such a system has 
never yet been worked out in America. We are all agreed 
in our opposition to the property tax, and in our desire to 
abolish the tax on personalty. We are also all agreed that 
the resulting burden on real estate must be diminished. 
If there is no immediate prospect of an adequate taxation of 
personal incomes the question therefore arises: How can 
equality of taxation be attained ? It is the one problem with 
which students of public finance must grapple. No answer 
has yet been given to it in the United States ; but in our 
judgment, at least, the problem is not insoluble.^ 

1 In a forthcoming work on TU Income Tax and the Beform ofAmencan 
Taxation by the present writer, the whole question will be fully treated. 
For a discussion of the federal income tax of 1894, in some of its rela- 
tions to state and local finance, see the article by the present writer in the 
Political Science Quarterly, vol. ix., Dec. 1894. 







rV. Hew York and Ohio. 

The year 1891 was marked by three reports, all of them of 
minor importance. The Boston tax commission dealt chiefly 
with that part of the subject of double taxation of peculiar in- 
terest to Massachusetts. The Oregon report was insignificant 
in argument and content, with the exception that it proposed 
the abolition of the mortgage-tax law — a proposition which, 
notwithstanding earnest effort, was carried through some- 
what later. The New Jersey commission handed in a pre- 
liminary and confessedly imperfect report, composed largely 
of extracts from previous reports and showing that it had 
not made much independent study of the subject. 

Passing over the report of the Iowa revenue commission of 
1893, which was of little consequence, we come to the report 
of the Delaware tax commission of 1893, which consists of 
two parts. This is interesting as exemplifying the different 
tendencies at work throughout the country. Delaware raises 
its state revenues from corporation taxes and licenses, but 
depends for its local revenues upon the poll tax, the tax on 
real estate, and on a few kinds of tangible personalty. The 
farmers objected to this and desired to reach in some way 
all owners of personalty. Hence the commission. The 
majority report approves of this desire, and recommends that 
intangible personalty, like money, investments, etc, be taxed, 
that a tribunal be created for equalizing county assess- 
ments, and that the collateral inheritance tax be reimposed. 
Although the signers confess that the general property tax 
does not work well they assert that this is due to " dis- 
honest citizens," and that if certain kinds of property be 
exempted, " cunning and scheming men " will ultimately re- 
duce the governmental revenues to an undue extent. 

The minority report, on the other hand, strenuously objects 
to the taxation of intangible personalty. Almost the whole 
of the report is an abridgment of the New York reports of 
187i-72 and of the Maryland report of 1888, showing the 


injustice of the general property tax. The report adopts 
in its entirety the diffusion theory of incidence and quotes 
Adam Smith as the chief forerunner of Thiers and Wells ! 
Although the commissioners "sympathize with the com- 
plaint of the Delaware farmer," they think that under the 
present system the taxes are " more equally distributed than 
in any other state." It is much to be feared that the 
Delaware farmer will not be satisfied with this Platonic 

Far more important than the Delaware report are those 
made to the New York legislature in 1893, the one by the 
counsel specially appointed to revise the tax laws, the other 
by the joint committee of the Senate and Assembly. Both 
the counsel and the compaittee chose to present results rather 
than extended arguments. 

The counsel affirm that they have studied not only the 
public documents of other states, but also the general litera- 
ture of the subject, including the views of the leading political 
economists of the day. They suggest that the information 
so obtained be collated for the use of the public for further 
reference ; but in the present report they prefer simply to 
present their conclusions, proceeding on the principle of 
proposing nothing which has already been before the legis- 
lature and which has failed of adoption. Thus they object 
to the " building occupancy " tax because the legislature re- 
fused to adopt it in 1872. If this principle were consistently 
carried out, there would be little chance for human progress ; 
for most innovations are at first opposed, and the mere fact 
that the legislature has in former years rejected a plan is 
neither a proof that they would reject it to-day, nor a reason 
why the advisers of the legislature should refuse to consider 
its feasibility. The counsel also discuss new plans. They 
object to the single tax and even to the tax on real estate 
alone, because they cannot see the equality and justice of 
levying all burdens on the real estate owner. They object 
to the income tax as too inquisitorial, and at present quite 
inadmissible. At the same time they strenuously oppose 


ti ' 





the "listing" system, although they call attention to the 
defects of the personal property tax. 

What, then, is to be done to secure equality of taxation ? 

The general property tax is to-day supplemented by the 
corporation tax and the inheritance tax. The counsel object 
to any great increase in the corporation tax on the ground 
that this ought to carry with it an exemption of corporations 
from local taxation, as in Pennsylvania — a plan which tliey 
think unwise, because the local bodies are not willing to lose 
so large a source of revenue. Again, they oppose a tax on 
corporate bonds : first, because it is at present legally impos- 
sible to tax bonds held outside of the state ; and, secondly, 
because bonds are already taxable to the owners as personalty. 
The only suggestions made as to corporate taxation are : 
to extend to other corporations the machinery of collection 
applied to the taxation of bank shares, and to apply the 
earnings tax on transportation companies to foreign as 
well as to domestic corporations. As to the inheritance 
tax, the counsel content themselves with a slight change 
in restricting exemptions. While apparently regarding 
with favor the settlement of the mortgage-tax question as 
in Massachusetts and California, they refrain from any 
recommendation, because the legislature has heretofore con- 
sidered the matter and taken no action. They do, however, 
propose a tax on deposits of savings banks above a certain 
limit. Finally, they object to " local option," because they 
clearly see that it simply means taxation of realty alone ; 
and this, they maintain, should be done by a general statute 
or not at all. 

Since, therefore, the present system of taxation is unjust, 
they think that one of two courses must be adopted : either 
personalty should be entirely exempt, or substantially all 
personalty should be taxed. The first plan seems too radi- 
cal ; therefore we must try to reach personalty. This may 
be done by improving the machinery, by centralizing the 
administration, and by providing for state equalization of 
personalty as well as of realty. 


The report of the counsel is timid and conservative ; but 
it at least possesses the distinction of not falling into the 
gross mistakes which so many of our recent state commis- 
sions have committed. The report of the legislative commit- 
tee, on the other hand, is not only in the main sensible, but 
also radical. 

In the first place, the committee agree with the counsel in 
opposing the income tax and the principle of local option in 
taxation. Secondly, in opposition to the counsel, they main- 
tain (1) that the taxation of savings-bank deposits would 
be an undesirable interference with the savings of thrifty 
people; (2) that the equalization of taxes on personalty 
"would legalize a system of official guessing," and would 
only intensify the coMict between the local divisions ; but 
(3) that a state tax on mortgages would be a desirable inno- 
vation, producing even at a rate of only one-half of one per 
cent nearly five millions of dollars. Thirdly, they pro- 
pose certain changes in the inheritance and corporation 
taxes, calculated to increase their yield and to equalize the 
burdens. The progressive principle is to be applied to the 
inheritance tax, and the exemption of real estate is to 
be abolished when the estate exceeds 850,000. The 
virtual exemption of heavily bonded corporations is to be 
removed by assessing a corporation tax in such cases upon 
the par value of the stock, instead of on the market value. 
Finally, the principle is laid down of a definite separation of 
the state and local revenues. The changes above suggested 
in the state taxes will, they believe, suffice to meet all state 
expenses. Real estate is to be left to the local bodies, 
and the whole question of local taxation may then be dis- 
cussed by itself. 

It will be seen that the committee's report is the more 
important. The first condition of improvement in our 
tax methods is to be found in the abolition of the prop- 
erty tax as a state tax. The idea is not new ; for, as we 
have learned, it has been urged for over twenty years in the 
reports of the New York state assessors and of officials in 


■ \ 




other states like Illinois and Maryland ; and the plan, as we 
know, is in practical operation in Delaware. This is, how- 
ever, the first time that the suggestion has been adopted in 
an important commonwealth by a committee of the legis- 
lature itself. 

The suggestion of a graduated inheritance tax is in har- 
mony with growing public sentiment ; but the proposed plan 
of dealing with corporations is not so satisfactory. If the 
heavily bonded corporation is so successful that it pays high 
dividends, the adoption of the par value instead of the 
market value of the stock as a basis would only intensify 
the present inequality. On the other hand, the counsel are 
entirely too timid in deprecating a tax on corporate bonds. 
The taxation of corporations on an assessment equal to the 
value of their stock and bonds would remove the legal 
obstacles, and would restore equality of taxation as between 
the various classes of corporations. Neither the committee 
nor the counsel, however, see that no form of corporate 
taxation can satisfy the demands of justice until the prob- 
lems of double taxation are attacked ; and that no adequate 
solution can be found until interstate agreements are adopted. 
It is to be deplored that no suggestion of this kind is to 
be found in either of the reports. The tax on mortgages 
proposed by the committee, is a makeshift. They forget 
that to tax the mortgagee on the mortgage and the mort- 
gagor on the whole value of the land is unendurable double 
taxation. Were the mortgagor to be taxed only on the 
unencumbered portion of his property, as is the case in 
many other states, the tax on mortgages would be less objec- 
tionable — although even then the plan hinted at by the 
counsel would be preferable. 

We come now to what is perhaps the best of recent reports 
— that of Ohio. The tax commission of Ohio, appointed 
in April, 1893, has evidently turned to good use some 
of the recent scientific writing on public finance. Most of 
the theories advanced are in accord with the sounder views, 
and everywhere an endeavor is made to conform to the neces- 


sities of practical reform. The commission tells us again 
how utterly inefficacious the listing system has been in Ohio. 
The " tax-inquisitor " law produces less than two per cent of 
the taxes, the greater part of which is paid by the rural 
counties; while intangible property altogether pays only 
nine and four-tenths per cent of the state taxes. The com- 
mission calls attention to the fact that this is simply a revival 
of mediaeval conditions, and recommends a complete repeal of 
the act. The attempt to reach intangible property directly by 
taxation is declared impracticable ; and the absurdity of the 
law is shown by the fact that the personal property tax in Ohio 
costs in some of the counties thirty-four per cent to collect. 
The commission, however, strongly maintains that as the 
only just principle of taxation is that of contribution accord- 
ing to ability, an effort must be made to reach intangible 
personalty in some other way. In a well-devised system 
taxation must on the whole be proportional to income or 
earnings, and yet the direct income tax is virtually impos- 
sible in this country as a state tax. The report is in fact 
noteworthy : first, because it accepts the principle of faculty, 
while abandoning property as a test of faculty; and secondly, 
because although it prefers income as a better indication of 
faculty, it recognizes the necessity of getting at the income 


Their solution of the problem may be summed up in a 
few words : taxation of real estate and tangible personalty ; 
an inheritance tax, increased and extended ; a franchise tax 
on corporations and enterprises; and the beginnings of a 
system of business taxes, through a tax on transfers of prop- 
erty, on law proceedings, etc, A valuable account is given 
of the taxation of corporate enterprises in Ohio, in which 
it is shown that while banks pay from seventeen to twenty- 
three per cent of their net income, and city real estate from 
fourteen to twenty-five per cent of its rentals, railroads pay 
only five to twelve per cent. This is one of the most inter- 
esting features of the report. The assessed valuation of rail- 
road property is compared with that of 1892, and an attempt 



"■. . 

If LI 

11 '|F|i 






is made to get at the true valuation based on a comparison 
of gross and net earnings, stock exchange quotations and 
bonded indebtedness. The results are surprising, but seem 
to be sound. In fact this part of the report abounds in 
intelligent comment. The commission earnestly contends that 
the correct measure of corporate ability for purposes of taxa- 
tion is income or earning capacity; and it recommends a system 
of corporate taxation based on the more approved methods. 
Altogether, the report of the Ohio commission is one of the 
most cheering evidences of the growth of saner and more 
enlightened views on the subject of taxation. It does not 
exhaust the subject, but it certainly goes a great way toward 
the improvement of existing conditions. 

V. Massachusetti and Pennsylvania, 

The next report is that of the Massachusetts commission 
of 1894. The Massachusetts system has long been marked 
by several peculiarities. It taxes incomes; does not tax 
mortgage notes on real estate ; and does tax shareholders 
of foreign corporations, whether or not such corporations 
are taxed by their own states. The special committee de- 
voted a considerable share of its hearings and report to the 
latter point, but decided for the continuance of the present 
practice. As a matter of fact, although the report contains 
a few good suggestions, it discloses very little acquaintance 
with modern views, and is distinctly inferior in this respect 
to that of the Ohio commission. Thus, for instance, the 
report does not attempt to recommend any more comprehen- 
sive system of corporate taxation, such as exists in Pennsyl- 
vania and New York, and it does recommend a continuance 
of the income tax. In arguing the latter point, it advances 
the remarkable statement that any attempt to abolish the 
income tax in England, Germany and France would probably 
result in a revolution. When we reflect that the French 
Revolution resulted in the abolition of their income tax and 
that it has been impossible since the Revolution to create a new 


income tax, the force of this statement becomes apparent. 
We are thus prepared for the final recommendation of the 
committee, which is nothing more nor less than the intro- 
duction of the listing system as the best solution of the 
Massachusetts tax problems. This is the sorry outcome of a 
long inquiry. 

On the other hand, there are some interesting points in the 
report. It shows how impracticable the single-tax theory 
is; for according to the testimony of the single taxers 
themselves, it would be impossible to raise sufficient revenue 
in the farming counties ; and the poor towns would have to 
receive aid from the more prosperous. The committee per- 
tinently ask : Where^is this aid to come from? 

The committee strenuously advocate the introduction of 
a graduated inheritance tax. They object to the exemption 
of municipal bonds from taxation; but on this topic there 
is much to be said on both sides. Finally, they call atten- 
tion to some of the results of the exemption of mortgage 
notes, and show that the advantages to the mortgagor have 
been greatly exaggerated. 

The report, therefore, is a mixture of good and bad ideas. 
It does not propose any comprehensive reform and it does 
not grapple with the subject in all its bearings. It is on the 
whole a distinct disappointment, and students will derive 
more profit from the testimony than from the report itself. 
As might liave been expected, there was little prospect of 
the adoption of the committee's retrograde recommendations; 
while the better propositions, like those for an inheritance 
tax, attracted considerable attention and were subsequently 
enacted into law. Massachusetts has much to learn before 
putting herself on a par with Pennsylvania. 

We come finally to a series of reports of peculiar interest 
— those of the Pennsylvania tax conference. The confer- 
ence was formed on somewhat novel lines. As a result of 
the tax-commission report of 1890, a bill was introduced in 
the Pennsylvania legislature, but met with opposition suffi- 
cient to defeat it. It was thereupon proposed by one of the 


tl ' 




senators that representatives of the different interests of the 
state be called together to ascertain the facts of taxation 
in Pennsylvania as compared with other states, and to report 
a bill which would be satisfactory to these interests. As 
a consequence, twenty-four representatives of agriculture, 
transportation, labor, commerce and manufactures, and the 
tax officials themselves, met at Harrisburg in February, 
1892. This voluntary conference appointed committees: 
one to examine and report upon the value of the various 
classes of property in the commonwealth ; another to examine 
the tax laws of all the states ; and a third to formulate the 
statement of principles on which the reform should be based. 
After making some elaborate investigations, the committees 
began to announce their results. The first to bring in a 
report was the committee on tax laws. This report, pre- 
sented in 1892, is valuable chiefly for the three tables which 
digest the tax laws of the Union and which give in compact 
form the essential facts. The committee itself make but few 
recommendations — generally of a sensible character. Some 
of their statements are erroneous, as for instance, when they 
say that an income tax has no place in the fiscal policy of 
any American state. The committee also repeat the old 
error that the property tax is, and ought to be, based upon 
the theory of protection. They maintain, however, that an 
income tax will not be equitably levied by elected officials, 
and that a single tax on land values will increase the burden 
on the poor. They find the best feature of the Pennsylvania 
system as compared with the systems of other states, to 
be in the separation of the sources of state and local taxa- 
tion. The committee refrain from making any specific 
recommendations because the members have not studied 
long enough to enable them to effect a complete harmony 
of views. The report, therefore, is primarily important 
for its presentation of facts. 

The next to report was the so-called commission on valu- 
ation and taxation. It attempted to ascertain the facts not 
only as to assessed valuation, but also as to actual value. 


This it sought to accomplish by taking the insurance 
valuations on insurable property, and by making special 
investigations through separate agents. The preliminary 
report, which was first presented, contains interesting fig- 
ures, some of which have been commented upon in other 
parts of this volume. Many tables are given as to the 
value of different kinds of property, but no attempt is 
made to draw any inferences, and the endeavor to ascertain 
actual values is often acknowledged to be only moderately 
successful. The valuation of property based on insurance 
turned out, as might have been anticipated, to be unsatisfac- 
tory. The remainder of the report, in addition to a state- 
ment of the existing iievenues of Pennsylvania, which are 
put in a very clear form, is devoted to a short description 
of property in the state exempt from taxation. 

During 1893 and 1894 followed reports on the valuation 
of railroads, other transportation companies, manufactur- 
ing corporations and real estate. At the conclusion of its 
labors the conference submitted a bill, instead of a general 
report. Its important features may be summarized as 

follows : — 

1. It separates state, county and local sources of revenue. 
The state taxes on inheritances, on commissions, on municipal 
loans and on certain licenses, as well as the local real estate 
tax are left unchanged. But the bill transfers from the 
state to the counties the important mercantile licenses, 
several other licenses, the stamp taxes, the fees of county 
officers, the carriage tax and a part of the personal prop- 
erty tax ; and transfers from the counties to the minor civil 
divisions the tax on horses and cattle. It imposes a new, 
but slight, county tax on the enrolment of corporations. 

2. It changes the state taxes on corporations. Corpora- 
tions are taxed on the value of their property, determined 
by adding to the market value of the share capital the 
market value of the funded debt when less than par, or 
the par value of the debt when the market value is par or 
more than par. From this aggregate are deducted (a) the 




value of real or personal property legally exempt by federal 
law, (5) the assessed value of the real estate locally taxable, 
and (c) the value of the real or tangible personal property 
without the state. In the case of corporations whose lines or 
operations extend beyond the state, only the proportionate 
part within the state is taxed. Foreign corporations are 
taxed in the same way except that they are not allowed 
any deduction for their property without the state. This 
system is to apply to all corporations, except manufacturing 
corporations, banks, building and loan associations and in- 
surance and trust companies. The latter are, however, taxed 
separately on their capital stock, except that insurance com- 
panies are taxed on premiums. 

The bill, so far as it goes, is in almost every respect in 
harmony with the more modern views. The only criticism 
that might be urged is the exemption of real estate locally 
taxable, which is unnecessary, because the state and the 
local bodies are not identical, but concurrent, tax jurisdic- 
tions. The bill was introduced into the legislature in 1895, 
but was hotly opposed by certain manufacturing corporations 
and finally failed to become law. 

It is as yet too soon to judge of the ultimate result of the 
work of the conference. It has been a novel experiment, 
based entirely on voluntary action, and the work has certainly 
been taken up in the proper spirit. If the practical results 
thus far achieved do not amount to very much, it is probably 
due to the weakness of human nature and to the inherent 
difficulties of the task. Pennsylvania has, however, always 
been at the head of tax reform in the United States ; and 
we may confidently expect some good results in the future 
from the labors of the conference. 

Slowly, but surely, we are moving toward a readjustment 
of the American system of taxation. Its ultimate form can 
already be faintly discerned : separation of state and local 
revenues; state revenues derived chiefly from corporation 
and inheritance taxes; local revenues derived from real 
estate and from the other elements of taxable /acuity. 


The majority of the recent reports recognize the fact that 
the problem cannot be solved merely by exempting person- 
alty. They see that the income tax, as a state or local tax, 
is no solution ; and are groping after adequate substi- 
tutes. That some form of mortgage taxation will be a part 
of the new system, is possible ; that a more refined system 
of corporation and inheritance taxation will reach other im- 
portant classes of personalty, is probable ; that additional 
taxes must be imposed, designed to reach the remainder of 
individual faculty — and based perhaps on outward signs 
and presumptions — is not yet recognized by many of the 
reports. The recognition of this fact, however, will come 
as soon as the demand for the abolition of the personal 
property tax has made more headway. Let us be thankful 
at all events that so many of the recent reports take a step 
in the right direction. They do not give us by any means 
all that is needed ; but the adoption of their fundamental 
proposals would make future reforms less difficult. 







1. Report of the Committee appointed by the General Assembly [of 

Connecticut] to inquire into the subject of Taxation. New 
Haven, 1844. 

2. Report on the State Assessment Laws by the Joint Select Committee 

appointed by the Legislature of 1862 [of New York]. Published 
as appendix to Street, A Digest of Taxation in the States. Albany, 

3. Report of the Auditor-General, Secretary of the Commonwealth, and 

State Treasurer, on the Tax Laws of the State [of Pennsylvania]. 
Harrisburg, 1867. 

4. Report of Hon. Charles S. Ogden [and others] to the Legislature of 

New Jersey [on Taxation]. Trenton, 1868. 
6. Report of the Special Commission [of Connecticut] on Taxation. 
New Haven, 1868. 

6. Report of the Conmiissioners to revise the Laws for the Assessment 

and Collection of Taxes [in New York]. Albany, 1871. 

7. Second Report of the Commissioners to revise the Laws for the 

Assessment and Collection of Taxes in the State of New York. 
Albany, 1872. 

8. Report of the Treasurer and Auditor [of Virginia] to the House 

of Delegates on the subject of Taxation. Richmond, 1874. 

9. Report of the Joint Special Committee on the subject of Property 

liable to and exempt from Taxation, made to the General Assem- 
bly of the State of Rhode Island. 1875. 

10. Report of the [Massachusetts] Commissioners appointed to inquire 

into the Expediency of revising and amending the Laws relating 
to Taxation and Exemption therefrom. Boston, 1875. 

11. Report to the Legislature of New Hampshire of Hon. George Y. 

Sawyer, Chairman of the Board of Commissioners to revise . . . 
the Tax Laws of the State, etc. Concord, 1876. 

12. Report of the Special Tax Commission of the State of New Jersey. 

New Brunswick, 1880. 

13. Report of the Special Commission [of Connecticut] to inquire into 

the Conditions and Workings of the Tax Laws. New Haven, 

14. Decisions, Opinions and Statistics compiled by the Tax Commission 

with their Report. Presented to the legislative Joint Tax Com> 
mittee of New York. 3 Parts. Albany, 1881. 

15. West Virginia Tax Commission. Preliminary Report. Wheeling, 


16. West Virginia Tax Commission. Final Report. Wheeling, 1884. 















Report of the Revenue Commission [of Illinois]. Springfield, 1886. 

Report of the Board of Commissioners of Assessment and Taxa- 
tion in the State of Oregon. Salem, 1886. 

Report of the Tax Commission of Baltimore. Baltimore, 1886. 

Report of the Special Commission on the subject of Taxation [in 
Connecticut]. New Haven, 1887. 

Report of the Maryland Tax Commission to the General Assembly. 
Baltimore, 1888. 

Report of Special Committee of the Boston Executive Business 
Association on Taxation. Boston, 1889. 

Report of the Revenue Commission appointed by the . . . Legis- 
lature of Pennsylvania. Philadelphia, 1890. 

Report of the Special Tax Commission of Maine. Augusta, 1890. 

Preliminary Report of the [New Jersey] Commission on Taxation. 
Trenton, 1891. 

Report of the [Oregon] Special Senate Committee on Assessment 
and Taxation. Salem, 1891. 

Report of the [Boston] Special Commission on Taxation. Boston, 

Report of the [United States] Select Committee to investigate Tax 
Assessments in the District of Columbia. Washington, 1892. 

Report of the Revenue Commission of the State of Iowa. Des 
Moines, 1893. 

Report of the Delaware Tax Commission to the General Assembly. 
2 parts. Wilmington, 1893. 

Report of the Tax Commission of Ohio. Cleveland, 1893. 

Report of the [New York] Joint Committee of the Senate and Assem- 
bly relative to Taxation for State and Local Purposes. With 
Testimony. New York, 1893. 

Report of Counsel to revise the Tax Laws of the State of New York. 
Albany, 1893. 

Hearings before the [Massachusetts] Joint Special Committee . . . 
relating to Taxation. Boston, 1893. 

A Full Report of the [Massachusetts] Joint Special Committee on 
Taxation. Boston, 1894. 

Reports to [and by] the Tax Conference of Pennsylvania Interests, 

(1) Report of the Committee appointed ... to examine the Tax 

Laws of other American States and report an Opinion for 
or against the governing Principles embraced therein [1892]. 

(2) Valuation, Taxation and Exemption in the Commonwealth 

of Pennsylvania. A Report by the Commission on Valu- 
ation and Taxation. Joseph D. Weeks, Chairman. Har- 
risburg, 1892. 




(3) Beport of the Commission on Valuation and Taxation [1893] . 

(4) Valuation and Taxation of Railroads in Fennsjlvania. Har- 

risburg, 1893. 

(5) Selling Price, Assessed Valuation and Taxation of Real 

Estate in Pennsylvania [1893] . 

(6) Minor Reports on Street Railroads, Canal Companies and 

Mortgage Indebtedness [1893]. 

(7) The Niles Tax Bill. An Analysis of its Provisions. By 

the Chairman of the Tax Conference. 1893. 

(8) Effect of the proposed Revenue Bill on the State Revenues. 

By Joseph D. Weeks, Chairman of the Tax Conference. 

(9) An Analysis of the Revenue Bill. By C. Stuart Patterson, 

a member of the Tax Conference. 1895. 

(10) Speech of C. Stuart Patterson on the Taxation of Railroads. 


37. Report of the Committee of the Chamber of Commerce of Chatta- 
nooga on Assessments and Taxation. Chattanooga, 1895. 

38., Report of the Special Committee on Taxation of the Cleveland 
Chamber of Commerce. Cleveland, 1895. 

39. Eighth Biennial Report of the Bureau of Labor Statistics of Illinois. 

Subject : Taxation. 1894. Second ed. Springfield, 1896. 

40. Twelfth Annual Report of the Bureau of Labor Statistics of the 

State of Connecticut. [Devoted to taxation.] Meriden, 189G. 

41. Ninth Biennial Report of the Bureau of Labor Statistics of Illinois. 

Subject : Franchises and Taxation. 1896. Sprmgfield, 1897. 

42. Report of the Commission appointed to inquire into the expediency 

of revising and amending the Laws of the Commonwealth [of 
Massachusetts] relating to taxation. Boston, 1897. 

43. Report of the Commission appointed by Governor Griggs to in- 

vestigate the Subject of Taxation in the State of New Jersey. 
Trenton, 1897. 

44. Report of the Wisconsin State Tax Commission. Madison, 1898. 

45. Report of the [Texas] Tax Commission to inquire into the system of 

Laws and Regulations now in force affecting the raising of Public 
Revenues and the disbursement thereof, etc., etc. Austin, 1899. 

46. Report to the Legislature of New York by the Joint Committee on 

Taxation. [Albany], 1900. 


Abatement, 312, 313, 327. 

Abbott, W.G., 263. 

Ability, see Faculty. 

Absentees, 110. 6'ee Non-residents. 

Account duty in England, 307, 308. 

Adams, C. F., Jr., 141 n., 193 n., 263. 

Adams, H. C, 364. 

Adickes, F., 333n., 336 n., 338 n. 

Agricultural land, 32, 75, 85-«9, 349. 

Agricultural products, imperial duties 
on in Grermany, 335. 

Aids, 6, 366. 

Alessio, 205 n. 

Aliens, taxation of, 108, 109, 117-119. 

Allegiance, economic, «ee Economic in- 
terests ; political, «ee Citizenship. 

American Bankers' Association, 264. 

American Economic Association, 272 n. 

American Law Review, 246 n., 263. 

American Statistical Association, 24 n. 

Ames, John H., 62, 263. 

Amortization, see Capitalization. 

Andrews, George H., 62. 

Antoni, 253 n. 

Apportioned taxes, 24, 373, 395, 402. 

Argyll, Duke of, 340 n., 356 n. 

Aristotle, 2, 15. 

Assessed valuations of realty and per- 
sonalty, 27, 28. 

Assessment, 7, 24, 74, 92, 330, 371, 387, 
403; special, see Special assessments. 
Assessors in Maryland appointed, 403. 
Athens, 39. 

Atkinson, Edward, 263. 
Aucoc, 282 n. 

Bachelors, tax on, 270. 

Bacher, 121 n. 

Bacon, 47. 

Baer, 50 n. 

Baltimore Tax Commission, 423. 

Banks, taxation of, 141, 143-150, 168, 
170, 177-179, 187, 242, 244, 246, 260, 
316 n., 405, 413, 415, 420. See State 
bank notes. 


Bases of taxation, 72, 111, 366, 370, 383; 

386 ; changes in, 16-21, 56, 367. 
Bastable, 132 n., 281, 282, 292, 304 n., 

350 n., 391-398. 
Baumann, 340 n., 347 n., 351 n. 
Bede, 6, 45. 

Benefit, special, 70, 82, 276-281, 283, 290» 
294, 296, 297, 301-303, 304, 338, 340- 
Benefit theory, 70, 78, 279, 344, 352, 396, 

400, 418 ; in local taxation, 336, 356. 
Bentham, 122-125, 311. 
Bequest, 12^-127. 
Betterment tax, 340-357. See Special 

Bibliographies, American, of the corpo> 
ration tax, 263; of the general prop- 
erty tax, 62; of reports on taxation, 
Bilinski, 53 n. 
Black, George A., 356 n. 
Black on Intoxicating Liquors, 279 d. 
Blackstone, 180, 265. 
Blumer, 44 n. 

Blunden, G. H., 53 n., 354 n. 
Bluntschli, 124. 
Boeckh, 39 n. 
Boisguillebert, 49. 
Boissevain, 323 n. 
Bolles, A. S., 408. 

Bonded indebtedness, 81, 104-106, 169, 
177, 195, 198, 214, 22*^237, 247, 252, 
412 ; of Pennsylvania railroads, 231 n. 
Boston commission, 99 n., 410, 423; 
Executive Business Association, 99 n., 
103 n., 423. 
Boyle and Davies, 53 n., 348 n., 360 n. 
Bread tax, local, in Prussia, 338. 
Brentano, 276 n. 

Brooklyn, assessed valuations in, 28. 
Brown, Frederick J., 62. 
Brown, W. A.,42n. 
Buchanan, 393. 
Buckingham, 393. 






Budget, 363, 376, 384, 391 ; equilibrium 

of, 73, 367. 
Building and loan associations, 164, 165, 

420; in New Zealand, 316 n. 
Building occupancy tax, 411. 
Burkart, 205 n. 
Business taxes, 10, 115, 279, 280, 337, 

415; in Holland, 322-327; in Prussia, 

331, 332, 335-338. 

Cable companies, 165. 

California Board of Equalization, 26 n., 

32 n. 
Caligula, 41. 

Canal companies, taxation of, 165, 178. 
Canale, 46n. 

Canals, public, 292, 297, 361. 
Canestrini, 50n., 51 n. 
Canons of justice in taxation, 77. 
Capital, taxation of, 20, 41. 
Capitalization of taxation, 105, 132, 255, 

325, 381, 396. 
Capitation tax, «ce Poll tax. 
Caracalla, 41, 42. 
Carli, 46 n. 

Carriage tax in Pennsylvania, 419. 
Carucages^ 43. 
Castle, 53 n. 

Cattle tax in Pennsylvania, 419. 
Cecil, Sir Robert, 47. 
Census, Roman, 40; United States, 27, 

83 n. 
Chailley, 205n., 372. 
Charters, corporate, tax on, 175, 194, 279. 
Chattanooga Chamber of Commerce 

committee, 424. 
Cheviot estate in New Zealand, 319. 
Chicago assessments, 27, 74; special 

assessments, 283. 
Cincinnati, assessed valuations in, 28. 
Circulating medium, tax on, proposed 

in France, 374. 
Citizenship as determining place of 

taxation, 108, 112, 114, 119. 
City and country property compared, 

Clamageran, 43 n., 45 n., 49 n. 
Classification of public revenues, 265- 
304, 359, 361, 362, 364, 368, 379, 383, 393. 
Class tax in Prussia, 332. 
Clauss, 242 n. 
Clement, 282 n. 

Cleveland Chamber of Commerce com- 
mittee, 31, 424. 
Cochran, Thomas, 62. 
Cohn, 50 n., 57 n., 363, 365. 

Colbert, 10. 

Coleman, James H., 263. 
Collateral inheritance tax, see Inheri- 
tance tax. 
Columbia College studies, 62, 63, 95 n., 

121n., 283n., 357n. 
Commerce, taxes on, 4, 19. 
Commissions, tax on, in Pennsylvania, 

Communication, taxes on, 299, 360. 
Compensation, 2>>8, 287. 
Compulsory contributions, 1-7, 266-268, 

274, 291, 302, 304, 366, 368, 394. 
Confiscation, 3, 124. 
Conflicts of jurisdiction, see Double 

taxation by competing authorities. 
Conigliani. 379, 380. 
Connecticut tax commissions, 31, 34, 

399, 422, 423. 
Conrad's Jahrbucher. 253 n. 
Consumption, taxes on, 9, 111, 307, 337, 
368, 375 ; local, in Germany, 335-338. 
See Expenditure. 
Contemporary Review, 357 n. 
Contractual payments, 266, 267, 274.292- 

Cooley, Judge T. M., 269, 270, 272, 281, 

287, 347 n., 351 n. 
Corn Laws, 11. 
Corn tax in Prussia, 338. 
Corporate charters, tax on, 175, 194, 279. 
Corporations, taxation of, 20, 103-107, 
115, 135, 136-264, 395, 397, 402, 404, 
420, 421 ; American bibliography, 263 ; 
complications, 103-107, 115, 157, 2LV 
254, 420 ; history and present condi- 
tion in America, 136-179, 239, 243, 
402, 403, 410, 413, 415, 416 ; in Austria, 
251 ; in England, 202, 251 ; in France, 

203, 252: in Germany, 205, 241, 252, 
339; in Holland, 326, 330; in Italy, 

204, 251 ; in New Zealand, 315-317; in 
Switzeriand, 202, 216, 222, 239, 248; 
incidence, 105, 254-258 ; legal difficul- 
ties, 206-211, 224, 412, 414; local, 238, 
239, 258-261; methods, 176-180, 192- 
206, 258-261, 404, 414, 419; principles, 
180-212; proposed reforms, 206-212, 
258,262; statistics, 176 n. 

Cort van der Linden, 380, 381. 
Cournot, 379. 
Craig, 393. 
Cripps, 351 n. 

Crocker, George G., 62, 247 n. 
Crusades, 44, 45. 

Customs, 4, 366, 367. See Import 






Dadelszen, E. J., 320 n. 

Dana, Richard H., 62, 103 n., 247 n. 

Daaegeldj 43. 

Dauphin, 371. 

Davies, 53 n., 348 n., 350 n. 

Death duties in England, 307-314. 

Debts, deduction for, 33, 100, 104, 214, 
889. See Bonded indebtedness. 

Deductive method, 358. 

Definitions of various public charges, 

Degressive taxation, 312. 

Delaware Tax Commission, 410, 423; 
system of taxation, 410, 414. 

Democracy, 8, 19, 76, 121, 122, 133, 305, 
306, 391. 

Denis, 282 n., 369-371, 372. 

Development of taxation, 1-22, 366. 

Dietzel, 136 n. 

Differentiation of the income tax, 57, 
98, 99, 131, 315 n., 324, 327, 328, 330, 
333, 334, 370; of the property tax in 
Switzerland, 387. 

Diffusion of taxes, 65, 396, 400, 409; of 
wealth, 125-128. 

Digby, 234 n. 

Dio Cassius, 41 n., 42 n. 

Diocletian, 41 n., 42. 

Direct and indirect taxation compared, 
4-12, 291, 361, 365-368, 384, 395. 

Direct taxation, 4-16, 129, 349, 362, 370, 
389, 404; development of, 5, 7-12; 
forms of, 12-16; in Athens, 39; in 
England, 6; in France, 371; in Hol- 
land, 322, 323; in the New England 
colonies, 19; in Prussia, 335, 338; in 
Rome, 39. 

Disraeli, 396. 

Distilleries and breweries, 164, 168, 

District of Columbia, report on taxa- 
tion in, 423. 

Dog tax, 407. 

Domains, 3, 39, 266, 275, 292, 359, 368, 

Domicile, as determining place of taxa- 
tion, 109-119, 223-243, 309. 

Door and window tax in France, 332 n. 

Double taxation, 95-120, 213-254, 414; 
by competing authorities, 96, 107-120, 
223-243, 309, 368, 396, 416; by the same 
authority, 3:3-36, 61, 96-107, 132, 213- 
222, 243-254, 316, 317, 325, 326, 405, 
410 ; just and unjust, 98, 105, 216, 243 ; 
of corporations, 103-107, 115, 213-254, 
258, 414. 

Douglas, Charles H. J., 62. 

Dowell, 45 n., 298 n. 

Dureau de la Malle, 41 n. 

Dutch system of taxation, 322-330. 

Duties, meaning of the word, 6. 

Economic conditions, their effect upon 
taxation, 1, 10, 20, 22, 305, 306, 339, 

Economic interests, as determining 
place of taxation, 110-120, 236, 237, 247. 

Economic rent, 66, 67, 92. See Single 

Economics and finance, 1, 370, 378, 389. 

Elasticity, 73, 381. 

Electric light companies, taxation of, 
104, 165, 170, 178, 179. 

Electric light supply, public, 295. 

Ellis, 203 n., 251 n. 

Ely, Richard T., 24 n., 62, 403, 404. 

Eminent domain, 2()7, 274, 284, 302. 

Endicott, William, Jr., 62. 

Engels, 46 n. 

English commissioners, 48, 52 n., 346 n., 
347, 348 n., 349 n.; House of Lords 
committees, 340 n., 348 n., 353, 354; 
system of taxation, 307-314. 

Ensley, Enoch, 62. 

Equal sacrifice theory, 396. 

Equality, see Uniformity. 

Equalization, 25, 402, 405, 410, 412, 413. 

Escheat, 3, 122-125, 311. 

Eschenbach, 121 n. 

Estate duty in England, 307-313. 

Ethical aspects of taxation, 5, 21, 54, 
60, 72, 77, 366, 367. 

Etymology showing the development of 
taxation, 5. 

Evasion of taxes, 30, 37, 131, 194, 199, 

" Evil duties," 4, 366. 

Exchange, taxes on, 9. 

Excise, 4, 9-12, 19, 129, 188, 233, 322, 
323, 366, 3G7. 

Exemption, 10, 186, 293, 312-314, 316, 
317, 325, 327, 335, 387, 410, 419; of 
agricultural capital, 326; of debts, 
33-36, 100, 389; of improvements in 
New Zealand. 314, 317, 319-322; of 
manufacturing corporations and en- 
terprises, 167-170, 199, 260, 320; of 
municipal bonds, 417; of mortgages 
in Massachusetts, 416, 417; of per- 
sonal property, 52, 403; of United 
States securities, 145. 

Expenditure, as a test of faculty, 10, 21, 
111, 332, 372. 

Expenditure, public, see Public expendi- 






Expenditure, taxes on, 10, 57, 64, 332, 

338, 372, 374. See Consumption. 
Exi)ort taxes, 19. 
Express companies, 162, 179. 
Expropriation, 268, 274, 302, 303. 

Faber, 276 n. 

Faculty or ability as the basis of taxa- 
tion, 72, 82, 111, 119, 193, 274, 275, 286, 
297, 302, 304, 322, 330, 337, 339, 34*- 
»47, 349, 350, 356, 381, 383, 396, 400, 
404, 415, 420, 421 ; development of the 
idea, 3, 5, 17, 21, 367, 368; in relation 
to the inheritance tax, 122, 130, 133 ; 
to progressive taxation, 312, 327 ; tests 
of, 5, 14, 18, 21, 53-56, 111, 193, 326, 
332, 346, 347, 368, 372, 386, 416. 

Faculty tax in the New England colo- 
nies, 19, 55, 56 n. 

Family theory of property, 124, 126. 

Farmers, burden of taxes on, 32, 85 ; in 
Delaware, 411 ; in New Zealand, 320, 

Fees, 4, 19, 70, 268, 272, 274-282, 296-300, 
337, 338, 359-^1, 366, 368, 379, 394; 
definition, 304; distinguished from 
special assessments, 289-292; from 
taxes, 273-282, 302-304, 352 ; of county 
officers in Pennsylvania, 419. See 
License fees. 

Ferries, taxation of, in Alabama, 164, 179. 

Feudal charges, 43, 121, 265. 

Field, Justice, 21 n., 233-235. 

Fifteenths and tenths, 45, 46. 

Finance, private and public, 392. 

Finance Statistics of the American 
Commonwealths^ 24 n., 153 n., 279 n. 

FinanZ'Archiv, 108 n., 205 n., 242 n., 
253 n., 254 n., 323 n., 332 n., 338 n., 

Fines, 3, 19, 268, 274, 302, 303, 394. 

Finley, J. H., 62. 

Foreigners, see Aliens. 

Foster, Roger, 263. 

Franchise tax, 150, 153, 157, 159, 167, 
170-175, 179, 180-192, 207, 208, 259, 260, 
279, 295, 415. 

Frankenstein, 367. 

Franklin, 299 n. 

Freight lines, 165. 

French Revolution, 76, 416. 

Frend, 393. 

Friedberg, 333 n. 

Gaius, 39 n. 
Gallopin, 374. 
Garular, Joseph, 392. 

Gas companies, taxation of, 164, 165, 
170, 178, 179. 

Gas supply, public, 293, 295, 301. 

Gemeiner Pfennig, 45. 

General corporation tax, 139, 159, 166- 
174, 177, 258, 260. 

Greneral property tax, 19-21, 23-63, 90, 
135, 136, 314, 321, 331, 338, 372, 373, 377, 
385-387, 402, 404, 408-413; Americau 
bibliography of, 62; applied to cor- 
porations, 138, 140, 154, 161, 166, 173, 
174, 192, 202, 213, 240, 256, 259; his- 
tory of, 37-53, 59; practical defects 
of, 24-37, 61; statistics of, 176 n.; 
theory of, 54-60, 418. 

George, Henry, V^, 69, 84, 93, 319, 321. 

Georgia, comptroller-geueral's report, 
54 n. 

Giffen, 392. 

Gifts, 2, 6, 266, 267, 302 ; death-bed, 309. 

Gladstone, 314. 

Groodnow, Frank J., 206 n., 272 n. 

Groschen, 53 n., 313. 

Governmental enterprises, 292-302, 359, 
368. See Canals, Gas supply, Electric 
light supply. Post office. Railroads, 
Telegraphs, Telephones, Water sup- 
ply, etc. 

Governmental services, 4, 70, 267, 275- 
278, 284, 287, 292-302, 304, 344, 352, 
353, 361 ; gratuitous, 2*)8, 299. 

Graduated taxation, see Progressive tax- 

Graduation according to relationship, in 
the inheritance tax, 124, 133, 307, 310. 

Gratuitous contributions, 266, 267, 302. 
See Gifts. 

Gross and net earnings, 153, 178, 179, 
196, 198-212, 238, 404, 416. 

Guyot, 372-374. 

Hab', Gut- und Kopfsteuer, 44. 

Hamilton, Alexander, 9. 

Hamilton, John, 62. 

Harcourt, Sir Vernon, 311, 313, 314, 333. 

Harrison, Charles, 348 n., 349 n., 351 n. 

Heckel, 100 n., 104 n. 

Hedley, 53 n. 

Hegewisch, 40 n. 

Held, 366. 

Helferich, 254 n. 

Heriot, 121. 

Hildebrand's JahrbUcher, 13 n., 39 n., 

HiU, J. A., 332n. 
Hillhouse, Thomas J., 263. 
Hills, Thomas, 63, 103 n. 





Hinckley, Isaac, 62. 

Historical method, 358, 369. 

Historical school, 358. 

Hobbes, 1, 10. 

Hoffman, 46 n., 50 n. 

Hopkins, S. M., 263. 

Horses and cattle, tax on, in Pennsyl- 
vania, 419. 

House of Lords committees, 340 n., 348n., 
353, 354; Standing Orders, 353 n., 354. 

House tax, 91; in Germany, 331, 332, 
335, 337, 338. 

HUllman, 45 n. 

Humbert, 40 n. 

Humphrey, A. W., 63. 

Hunter, 234 n. 

Huschke, 40 n. 

Huxley, 68 n. 

Idaho comptroller's report, 29 n. 

Illinois Revenue Commission, 25 n., 31, 
401, 423. 

Import taxes, 6, 19, 75, 270, 322, 374. 

Imposts, 6, 367, 368. 

Jmpdt unique, 77. 

Improvements on land, exemption of, 
in New Zealand, 314, 317, 319-322; 
value of, 85-88, 320. 

Incidence, see Shifting. 

Income, as a test of faculty, 18. 21, 55, 
56, 111, 332, 415; different kinds of, 
98, 100, 130, 131, 218, 315, 316, 324, 327, 
328, 334, 387, 409 ; meaning of term, 

Income tax, 6, 18, 56, 73, 98, 114^118, 
135, 261, 337, 359, 369, 371-373, 397, 
404, 405, 409, 415, 421 ; corporate, 198- 
200, 216, 217, 240, 241, 256, 326, 408; 
federal, 21, 84, 114, 115, 118, 201, 409 n. ; 
in the American colonies and states, 
65, 56 n., 99, 117, 403, 408, 411, 413, 416, 
418 ; in Australasia, 314-316, 321 ; in 
England, 74, 115, 251, 307, 311-314, 
325, 373; in France, 416; in Holland, 
323-330; in Italy, 373; in Prussia, 
332-338 ; in Switzerland, 373. iSee Dif- 
ferentiation ; Progressive taxation. 

Indirect taxes, 4-12, 72, 129, 204, 300, 
362 ; development of, 4, 7-12 ; in Eng- 
land, 11 ; in France, 371, 373 ; in Ger- 
many, 335, 338; in Holland, 10, 19, 322, 
328 ; in New Zealand, 321 ; in the South- 
em colonies, 19; local, 9, 337-339. 

Industrial revolution, 7, 52. 

Inheritance, 122-129. 

Inheritance tax, 6, 115, 121-135, 261, 270, 
339, 360, 395, 397, 420, 421; in America, 

128, 129, 133, 311, 388, 406, 410, 413, 
415,419; in Australia, 133, 311 n.; in 
Canada, 133; in England, 121, 133, 
307-314 ; in France, 121, 374; in Hol- 
land, 121, 324; in Prussia, 334, 342; 
in Rome, 42, 121 ; in Switzerland, 133, 
388; statistics of, 134 n., 314; theories 
of, 122-133. See Graduation; Pro- 
gressive taxation. 

Innocuity of taxation, 380. 

Insurance companies, 139, 141-154, 168, 
170, 178, 179, 203, 205, 237, 242, 260, 
279, 405, 420. 

Insurance theory, 129. See Benefit 

Interest, taxes on, in Germany, 331, 335, 

Intermunicipal complications, 114, 238. 

Internal revenue taxes, 6, 9, 198, 255 n., 
270; in HoUand, 322. 

Interstate agreements, 114, 120, 237, 247, 
262, 414. 

Interstate Commerce Commission, 201. 

Interstate commerce, interference with, 
183, 187, 190, 206-211. 

Interstate complications, 107-120, 401, 
408; in corporation taxes, 157, 195, 
223-243, 246, 248. 

Inventory of property after death, 132, 

Iowa auditor's report, 29 n., 33 n. ; Reve- 
nue Commission, 74, 410, 423. 

Jakob, 382. 

Jastrow, J., 332 n., 333 n. 

Jevons, 380, 392. 

Joint-stock companies, 167, 170, 176, 182, 

Judicial interpretation and social prog- 
ress, 270-273. 

Justi, 275. 

Justice in taxation, 21, 305, 339, 364, 367, 
370; canons of, 77. See Uniformity; 

Kauffmann, 252 n. 

Kentucky auditor's report, 33 n. 

Kenyon, Lord, 62. 

Knott, R. W., 63. 

Koenig,371, 372. 

Kriiger, 121 n. 

Labor theory of property, 67, 69. 
Lactantius, 42. 
Laissez-faire, 396. 
Land as a test of faculty, 14, M7. 
Land nationalization, 68, 69. 




LandschosSf 46. 

Land tax, 10, 14, 53, 65, 66, 337. 397 ; in 
Athens, 39; in England, 43, 51, 325; 
in France, 373, 402; in Holland, 322, 
324, 325, 327; in New Zealand, 314- 
322 ; in Prussia, 331, 332, 336, 338 ; in 
Rome, 40; in Switzerland, 386. See 
Real property tax. 

Land values, 78, 79, 85-89, 320; tax on, 
see Single tax. 

Lane, J. A., 63, 99 d. 

Lang, 46 n. 

Lassalle, 9. 

Layton, A. T., 308ii. 

Leeman, 282 n. 

Legacy duty in England, 307, 308, 310. 

Leidig, 282n. 

Leroy-Beaulieu, 37 n., 282, 359, 371, 382. 

Levasseur, 42 n. 

Lewald, 205 n., 254 n. 

Lewis, 137n., 243 n., 259n. 

Lex Huene, 335. 

License fees and taxes, 20, 165, 175, 272, 
273, 279, 281, 350, 351, 360, 404, 408, 
410, 419. See Corporations. 

Liquor licenses, 76, 270, 271, 281. 

Liquor tax in Holland, 323. 

Listing system, 405, 412, 415, 417. 

Literature of taxation, American, 62, 
263, 391M24; European, 358-398 
Dutch, 377, 380-383; English, 389-398 
French, 369-377; German, 358-369 
Italian, 377-380; Portuguese, 382 
Spanish, 382-384; Swiss, 384-389. 

Livy, 40 n. 

Loans, tax on, 169, 178, 419. 

Local option in taxation, 412, 413. 

Local taxation, 96, 337, 397 ; in America, 
24, 285, 341, 345; in Austria, 301; in 
England, 51, 285, 286, 301, 312, 313, 
341, 345-350; in Germany, 330, 333, 
335-338; in HoUand, 323-330; in New 
2Jealand, 321; in Switzerland, 389; its 
relation to the general tax system, 
330. 333, 335-339, 401-403, 407, 410. 413, 
418-420; of corporations, 238, 258^261, 

Loening, 282 n. 

London County Council Orange Book, 
^1 n., 342n., 343n., 348n. 

Loria, 379. 

Lorrain, 374. 

Machiavelli, 51. 

Madox, 44 n., 181 n. 

Maine Tax Commission, 405, 423. 

Malthus, 391. 

Mansfield, Lord, 52. 

Manufacturing corporations, 139, 167- 

170, 173, 199, 260, 419, 420. 
Manumission tax in Rome, 42. 
Marginal utility, theory of, 276, 378-380, 

Marquardt, 40 n., 41 n. 
Marriage licenses and fees, 290, 291, 351, 

Maryland system of taxation, 403 ; Tax 

Commission, 403, 410, 423. 
Massachusetts Anti - Double - Taxation 

League, 103 n. ; commissions, 34, 35 n., 

84, 400, 416, 422, 423. 
Matthews, Nathan, 103 n. 
Matthias, 40 n. 
Mazzola, 378. 
McCulloch, 367, 369, 390. 
Meat tax, in Holland, 323; local, in 

Prussia, 338. 
Mediaeval towns, 9, 43, 44, 56. 
Meier, 205 n. 
MeiU, 249n. 
Meitzen, 241 n. 
Menier, 372, 373. 
Mercantilism, 390. 
Methods in economics, 358. 
Meyer, Christian, 44 n. 
Mill, J. S., 98, 125-127, 376, 381, 390, 391, 

Mines, public, 360. 
Mines and mining companies, taxes on, 

164-167, 177-179; in Prussia, 338. 
Minimum of subsistence, 307, 314, 327, 

328, 365, 370. 
Minot, William, Jr., 63. 
Miquel, 333, 334, 339. 
Mobilia personam sequuntur, 112, 113 n., 

224,225. -Sec Domicile, Situs. 
Mommsen, 40 n. 
Monopolies, 80, 81, 277, 368, 396, 404; 

fiscal, 293, 300, 361, 368; public, 295, 

Montana Board of Equalization, 87. 
Moore, Edward C, Jr., 246 n., 263. 
Moral obligation to support the govern- 
ment, 3, 5, 54, 72, 77. 
Mortgages, 35, 101-104, 169, 234, 318, 389, 

406, 410, 413, 414, 416, 417, 421 ; situs 

of, 102 ; taxed as realty, 29, 102, 316, 

Municipal enterprises, 293, 295, 298, 299 ; 

in Prussia, 338. 

Natural rights, 67, 69, 78, 124. 

Nausinicus, 39. 

Nebraska auditor's report, 25 n. 





Necessaries, taxes on, 10. 

Necker, 49 n. 

Neefe, 336 n. 

Net earnings, see Gross and net earn- 

Neumann, 291 n., 360-362, 366. 

New Hampshire tax report, 31, 401, 422. 

New Jersey comptroller's report, 285 n. ; 
commissions, 31 n., 34, 399, 401, 410, 

New York City, bank officers' commit- 
tee, 264 ; building lots, 91 ; commission- 
ers' reports, 31 n., 36 n.; corporation 
taxes, 239; land values, 78; Rapid 
Transit Commission, 78; special as- 
sessments, 283. 

New York State, assessors' reports, 
25 n., 26 n., 33 n., 36 n., 402, 413 ; com- 
missions and joint committees, 26 n., 
35, 113 n., 39i>-401, 410, 411, 413, 422, 
423 ; comptroller's report, 36 n. ; coun- 
sel to revise the tax laws, 31, 411-413, 

New Zealand, colonial treasurer's state- 
ment, 319; commissioner of taxes' 
statement, 322 n. ; Official Year-book, 
320 n., 322 n.; plan of governmental 
purchase, 319, 356 ; recent tax reforms 
in, 314-322. 

Niles tax biU, 424. 

Noble, 53 n. 

Non-residents, taxation of, 110, 115, 116, 
118, 148, 229, 242. 

North Dakota Board of Equalization, 

Oberly, J. H., 141 n., 193 n., 263. 

Object of taxation, 395. 

Occupation taxes, 279, 408. 

Occupation theory of property, 67. 

Octroi, 9, 44. 

Ogden, Charles S., 422. 

Ohio Tax Commission, 31, 414-416, 423. 

Oil companies, 165. 

Oleomargarine, tax on, 76, 270. 

01mstead,M. G., 263. 

O'Meara, J. J., 53 n. 

Opium, tax on, 76, 270. 

Opportunity, 78, 82. 

Oregon tax commissions, 36 n., 410. 

Organization tax, 175, 194, 279. 
Oronzo Quarta, 204 n. 

Pacific railroads, 200. 
Palace car companies, 163. 
Palgrave, 53 n. 

Parieu, 39 n., 362, 382, 384. 

Partnerships, 97, 167. 

Patterson, C. S., 263, 424. 

Peabody, A. P., 63. 

Peel, 314. 

Penal power, 267, 268, 302. 

Penalties, see Fines. 

Pennsylvania, auditor-general, 407, 422 ; 
commissions, 86, 211, 399, 406, 417, 
418, 422-424; Tax Conference, 86, 
194 n., 231 n., 237, 417-420, 423, 424. 

Pepper and Lewis, 137 n., 243 n., 259 n. 

Pepys' Diary, 342. 

Percentage taxes, 24, 374, 395, 402. 

Pereira Jardim, 382. 

Perjury, 31. 

Perry, A. L., 63. 

Personal property tax, 15, 27, 136, 147, 
374, 397, 400. 401, 403, 405, 409, 410, 
412, 415, 419, 42L 

Personal taxes, 18, 337; in Holland, 
322, 323. 330; in Prussia, 331, 333. 

Petty, 10, 48, 266. 

Philadelphia, value of land and im- 
provements in, 86. 

Philippsberg, 253 n. 

Phillips, 53 n. 

Physiocrats, 77, 389, 390. 

Piernas-Hurtado, 382-384. 

Pierson, 322, 323, 325, 327, 330, 333, 380, 

Pingree, Mayor, 298. 

Pipe-line companies, 165. 

Place of taxation, 107-120, 223-243, 309, 
368, 397, 416. 

Pliny, 125. 

Police or regulative power, 267, 268, 
269-274, 280, 281, 284, 302. 

Political effects of taxation, 75. 

Political Science Quarterly, 15 n., 42 n., 

50 n., 56 n.,122n., 125n., 137n., 206n., 

351 n., 409 n. 
Poll tax, 12, 19, 21, 41, 43, 44, 360, 366, 

386, 389, 405, 410. 
*' Pool tax " in New York, 165. 
Poor law, 390; commissioners, 52 n., 

346n.,347, 348n., 349n. 
Poor rate in England, 51, 285, 346, 347, 

349 n. 
Post office, 267, 292, 2a'>, 296, 298. 
Potato tax, local, in Prussia, 344. 
Prerogatives, 3, 4, 265, 275, 360, 366, 368, 

Price, 276, 292-304; private, 298, 362; 

^Mosi-private, 294, 297, 298, 302-3Gi 

public, 296, 298, .^01-304. 
Primitive society, 2, 12, 366. 




Probate dnty, 121 ; in England, 128, 307, 
308, 313. 

Probate fees, 128. 

Probyn, 53 n. 

Produce taxes, 14, 19, 43. 

Product, as a test of faculty, 14, 21, 55, 
56, 60. 332, 368 ; taxes on, 17, 111. 331, 

Profits, taxes on, 366, 396. 

Progressive taxation, 32, 111 n., 127, 128, 
286, 314, 317, 318, 323, 359, 364, 370, 
378, 381, 388; in America, 133, 134, 
143, 152, 158, 164, 196, 413, 414, 417 ; 
in Athens, 39; in England, 307-314; 
in Holland, 323, 327-330; in Prussia, 
333, 334 ; of corporations, 143, 152, 158, 
164, 196 ; of house rent, 323, 330, 372 ; 
of incomes, 39, 360, 388, 396 ; of in- 
heritances, 130, 133-135, 310-312, 317, 
318, 388, 396, 413, 414, 417 ; of land in 
New Zealand, 317-319, 321, 356; of 
property in Switzerland, 50, 388. 

Property, as a test of faculty, 5, 13, 21, 
53, 54, 60, 193, 346, 386 ; in land, 66, 
68 ; theories of, 67, 124, 126. 

Property taxes, 367, 397 ; in the Ameri- 
can colonies, 19; in Athens, 39; in 
France, 373 ; in Holland, 324-330 ; in 
Italy, 373; in New Zealand, 314, 317, 
318, 321 ; in primitive communities, 5, 
13, 366 ; in Prussia, 98, 331, 334, 338 ; in 
Borne, 40 ; in Switzerland, 50, 98, 386, 
388 ; supplementary, 57, 98, 334, 337, 
338. See Creneral property tax; Per- 
sonal property tax ; Real property tax. 

Proportional taxation, 23, 128, 286, 364. 

Protection, 75, 270. 

Protection theory of taxation, 5, 129, 
366, 418. See Benefit theory. 

Prussian system of taxation, 330-339. 

Public economic income, 394. 

Public expenditures, 7, 363, 383, 393; 
recent increase of, in England, 391. 

Public price, 296-298, 301-304. 

Public property, 3, 302. See Domains. 

Public purpose or interest, 268, 274, 284- 
286, 294-297, 299, 302-304, 344, 352, 

Qaarterly Journal of Economics, 103 n., 

332 n. 
^ucwi-private price, 294, 297, 298, 302- 

Quid pro quo theory, $ee Benefit theory. 
Quincy, J. P., 63. 
Quit-rents, 18. 

Racing associations, 165. 

Rae, John, 356 n. 

Railroads, in Ohio, 415; in Pennsylva- 
nia, 231 n. ; public, 292, 295, 297, 359, 
361 ; taxation of, 81, 141, 142, 154-160, 
171, 177-179, 184, 188, 196, 199-203, 
205, 226, 242, 260, 404, 405, 408, 416. 
See Corporations ; Street railways. 

Raleigh, Sir Walter, 47. 

Rated taxes, 395. See Percentage 

Rates, 7, 346, 350, 352. See Poor rate; 
Special taxes. 

Ran, 274, 275, 362, 382. 

Raynaud, A., 374. 

Real property tax, 19, 63, 59, 65, 74, 90, 
259-261, 337, 386, 388, 411 ; as a local 
tax, 402, 403, 408, 410, 413, 419, 420. 

Real taxes, 18, 331, 337, 338. 

Reciprocal laws, 117, 151, 166. 

Recoupment, 354. 

Reforms, recent, in taxation, 135, 306- 
339 ; in England, 307-314 ; in Holland, 
322-330; in Prussia, 330-339; in New 
Zealand, 314-322. 

Regalia, 265, 275, 360, 393. 

Registration duties in Holland, 323. 

Regressive taxation, 32, 72, 128, 376, 

Relief, 121. 

Rent, 90, 91, 372. 

Rentals tax in Germany, 335, 336, 338, 
339; in Holland, 322, 323, 330; pro- 
gressive, 323, 330, 372; proposed in 
Maryland, 403; proposed in New 
York, 400, 401. 

Residence, see Domicile; Temporary 

Retaliatory laws, 151. 

Revolution, American, 76; French, 76, 
416; industrial, 7, 52. 

Rhode Island joint committee, 422. 

Ricardo, 66, 390, 391, 396. 

Ricca-Salerno, 377, 378. 

Ripley, William Z., 63. 

Ritchie, 68 n. 

Rochester, N.Y., 28. 

Rodbertus, 13, 39 n., 40 n., 41 n. 

Rogers, Thorold, 63 n. 

Roguin, 244 n. 

Rome, 8, 39-43. 

Ropes, J. C, 63. 

Roscher, 34 n., 293 n., 364-366. 

Rosewater, Victor, 283 n., 287 n., 343 n., 
351 n., 366, 356 n. 

Ruger, Chief Justice, 227. 

Ruggles, Judge, 284. 




Saladin tithe, 45. 

Salt monopoly, 293, 300, 360 

Salt tax, 323. 

Sanction, power of, 268. See Police 

San Francisco, value of land and im- 
provements in, 86. 

Savigny, 40 n. 

Savings, taxation of, 56. 

Sawyer, George Y., 31 n., 422. 

Sax, 282 n., 377-389. 

Say, Leon, 50 n., 371. 

Sayer, 393. 

Schaffle, 366, 381. 

Schall, 293 n. 

Schanz, 108 n., 214 n., 216 n., 222 n., 
240 n., 241 n., 248 n., 249 n., 250 n., 
251 n., 253 n., 384-389. 

SchmoUer, 46 n., 50 n. 

Schonberg, 44 n., 251 n., 293 n. 

Schreiber, 240 n., 249 n. 

Schwab, J. C, 63. 

Science of finance, 392 ; recent develop- 
ment of, 358-398. 

Scot and lot, 43. 

Scutages, 43. 

Seisser, 253 n. 

Self-assessment, 330, 371, 387. 

Separation of state and local revenues, 
333, 339, 401-403, 410, 413, 418-420. 

Services, personal, 3, 366; govern- 
mental, 4, 70, 267, 275-278, 284, 287, 
292-302, 304, 344, 352, 353, 361. 

Settlement estate duty in England, 309. 

Shearman, Thomas G., 24 n., 63. 

Sherman, Isaac, 63, 65. 

Shifting and incidence of taxation, 66, 
66, 91, 101, 381, 365, 370, 390, 395, 396, 
400, 408; of corporation taxes, 105, 
254-258. See Capitalization 

Shipgeld, 43. 

Short, Edward L., 263. 

Sinclair, 33 n., 44 n. 

Single tax, on capital, 66; on expense, 
10, 64 ; on houses, 64 ; on incomes, 65. 

Single tax on land values, 61 n., 64-94, 
270, 319-322, 352, 411, 417, 418; prac- 
tical defects of, 73-93 ; theory of, 66-73. 

Single Tax League platform, 67. 

Situs, 52, 110-120, 223, 224; of mort- 
gages, 102. 

Sleeping car companies, 163, 178, 179. 

Smith, Adam, 48 n., 49 n.,132, 266, 274, 275, 
281, 351 n., 359, 389, 390, 394, 396, 411. 

Soap tax in Holland, 323. 

Social effects of taxation, 76, 93, 269-273, 


Socialism, 69, 122, 127, 299, 311, 327, 359, 
366, 383, 396. 

Social progress and judicial interpret*- 
tion, 270-273. 

Social utility theory of property, 68, 300l 

Sociology and finance, 370. 

Socio-political theory, 269, 327, 363, 364, 

Solon, 39. 

Sovereign powers, 267-269. 

Spear, T. J., 263. 

Special assessments, 70, 93, 266, 274, 282- 
292, 337, 338, 340-357, 394; definition, 
304 ; distinguished from fees, 289-292 ; 
from taxes, 272, 285-288, 302-304, 343- 
353; origin of, 340-343; statistics of, 

Special taxes, 278, 285, 286, 297, 345-350. 

Speculation, 79, 80; in real estate, 58, 
79, 92, 308. 

" Speenhamland Act," 62. 

Speiser, 240 n., 244 n. 

Stamp taxes, 11, 122, 204. 374; in Penn- 
sylvania, 419. 

State bank notes, tax on, 76, 270. 

Statistics of assessed valuations, 27, 28; 
of the comparative value of land and 
improvements, 86-88, 320 ; of the cor- 
poration tax and general property 
.tax, 176 n.; of the inheritance tax, 
134 n., 314; of railroads in Pennsyl- 
vania, 231 n. ; of special assessments, 

Steamboat companies, 166, 166, 178. 

Stein, 366. 

Stevens, B. F., 263. 

Stevens, W. B., 263. 

Stock in trade, 52, 145. 

Story, 112 n. 

Stourm, 49 n., 375-377. 

Street, 422. 

Street railways, public, 293; taxation 
of, 164, 165, 238, 271. 

Subject of taxation, 396. 

Subsidies, 2, 6, 18, 47. 

Succession duty in England, 307, 308, SlOi 

Succession tax, see Inheritance tax. 

Suetonius, 41 n. 

Sugar monopoly, 300. 

Sugar tax, in Holland, 323. 

Sugar Trust, 81. 

Sully, 49. 

Swiss system of taxation, 384-389L 

Tacitus, 41 n. 
Taille, 43, 49. 
Tallages, 43, 45. 




Tanqu^rey, 203 n., 252 n. 

Taxes defined and distinguished from 

other public charges, 7, 71, 269, 270, 

272-289, 297, 298, 300, 302-304, 34^352, 

366, 368, 394. 
Taxing power, 267, 269-275, 280, 281, 284, 

288, 280, ^3, 350, 351. 
Tax officials, elective and appointive, 

40:5, 418. 
Tayler, 48 n. 
Telegraph companies, taxation of, 160, 

177, 226. 

Telegraphs, public, 267, 292, 295, 361. 
Telephone companies, taxation of, 161, 

178, 227, 228. 
Telephones, public, 292, 295. 
Temporary residence as determining 

place of taxation, 109. 

Tennessee comptroller's report, 33 n. 

Theodosian code, 42. 

Thiers, 400, 411. 

Thurman law, 200. 

Tithes, 14, 41, 45. 

Tobacco factories taxed in Kentucky, 

Tobacco monopoly, 293, 300, 360. 

Toll-bridges taxed in Alabama, 164, 179. 

Tolls, 4, 70, 274, 290, 297, 298, 350, 352, 
361, 366. 

Townsend, M. I., 26 n. 

Transfers and transactions, taxes on, 
121, 122, 129, 204, 325, 360, 415; in 
France, 374; in Germany, 335, 336; 
in HoUand, 323. 

Transportation, taxes on, 299. 

Transportation and transmission com- 
panies, 154-167, 178, 226, 237, 242, 260, 
262, 407. 

Treasure, 2. 

Treasure-trove, 360. 

Tribute, 2. 

Tributum civium, 39; soli, 41. 

Trinoda necessitas, 3, 366. 

Trust companies, 165, 170, 178, 420. 

Turnpike companies taxed in Kentucky, 
IW, 178. 

Ulplan, 39 n. 

Umpfenbach, 125, 359, 360. 

Unearned increment, 66, 70, 76, 78-«2, 92, 

352, 354, 356, 357. 
Uniformity of taxation, 25, 61, 77, 186, 

220, 268, 287, 380, 384. 
Universality of taxation, 27, 61, 64, 71, 

77, 366, 380, 384, 396. 
Utility, marginal or final, 276, 378-380, 

383; social, 68, 300. 

Value, a social product, 80 ; of land and 
improvements, 85-89, 320; of realty 
and personalty, 29. 

Vauban, 49. 

Veblen, T. B., 363n. 

Vectigalia, 39. 

Vespasian, 41. 

Vicesima hereditatium, 121. 

Vignes, 205n., 252n. 


Virginia report on taxation, 422. 

Viti de Marco, 378. 

Vocke, 293 n., 365-369. 

Voltaire, 77, 78. 

Voluntary contributions, 1-7, 18, 267, 
291, 304, 366. 

VonScheel, 121 n. 

Vuitry, 43 n. 

Wages, 92 ; tax on, in Holland, 326 ; in 

Germany, 331, 335, 336. 
Wagner, 34n., 60n., 251 n., 268, 269, 291, 

293 n., 332 n., 362-366, 382. 
Walker, Amasa, »4, 406. 
Walker, F. A., 56. 
Walker, Francis, 63, 96 n., 113 n., 

120 n. 
Walpole, 33. 
Walter, 40 n., 41 n. 

Washington State Board of Equaliza- 
tion, 88; territorial auditor's report, 

29 n. 
Water companies, 164, 179. 
Water rate or tax, 301. 
Water supply, public. 278, 293, 295, 298, 

Weeks, Joseph D., 194 n., 423, 424. 
Wells, David A., 63, 269, 399, 400, 411. 
West, Max, 121 n., 122 n., 125, 128 n., 

132 n. 
West Virginia auditor's report, 85 ; Tax 

Commission, 25 n., 32, 33 n., 401, 

Whitmore, William H., 63. 
Williams, Chaimcy P., 263. 
Williams, W. B., 141 n., 194 n., 263. 
Willis, Benjamin A., 63. 
Window tax in France, 332 n. 
Wood, Frederick A., 63. 
Worms, 375. 
Worsement, 364. 
Worthington, T. K., 63. 
Wright, John A., 211 n., 263, 408, 409. 

Zeumer, 44 n. 

Zorli, 378, 379. 

Ziircher, 240 n., 248 n., 249 n., 250 n. 


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Seligman, Edwin R. A 
Essays in Taxation. 




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